Expect to See More Big-Budget Feature Films on Netflix -- Here's Why

CEO Reed Hastings said that critical acclaim for its films keeps the best deals and talent coming to Netflix.
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More feature films are coming to your Netflix account, company executives told investors on Tuesday.

On Netflix’s fourth quarter earnings call, management elaborated on the business rationale behind pouring money into big-budget films. Netflix (NFLX) - Get Report shares were down 2.69% on Wednesday after a mixed earnings report showed tepid domestic growth but stronger results internationally.

But awards season was in the air as Netflix executives talked up the quality of films and series going live on the service -- and why it matters to invest heavily in films like “The Irishman,” which reportedly had a budget of $175 million. Several Netflix projects, including “The Irishman," “Marriage Story” and "The Two Popes", received a slew of Oscar nominations, making Netflix the most-nominated studio this year.

Netflix content chief Ted Sarandos said to expect a step-up in big budget film projects.

“You're going to see us working across all genres like we did in Q4 and still continuing to kind of press up the production quality, the production investment in these films,” Sarandos said, calling out a forthcoming action film with with Mark Wahlberg, Charlize Theron and Chris Hemsworth, as well as sequels to young adult-focused films. Netflix spent about $15 billion on content overall in 2019, about 50% of which was on originals. It’s expected to exceed that total spend in 2020.

“[We’re] trying to program our movies like we do our series for every taste, every mood, every region of the world,” Sarandos added. “It's exciting that we end up with being the most-nominated studio at the Oscars this year with our films. But the most exciting thing is those films are all incredibly popular with our members as well.”

Netflix has said that part of the value in making big-ticket films, such as The Irishman, is that they boost the value of the Netflix in the eyes of subscribers -- a member can watch a quality film at home, in lieu of spending $100 on a night out.

Not only that, a strong reputation keeps the best talent and deals flowing in Netflix’s direction, according to Netflix CEO Reed Hastings.

“The business benefit is that we will win deals that we would've otherwise won for incredibly entertaining content. So, think of all of our awards work as a really smart way to make us the best home for talent in the world,” Hastings said.

Executives also called out the ability of films -- particularly animated features, which Netflix has been emphasizing more as of late -- to travel around the world, along with local language series, in a more “predictable” way according to Sarandos. Although its domestic growth was weaker than expected, Netflix topped forecasts on international growth by a good margin, posting 8.3 million new international subscribers versus a 7.2 million consensus.

According to CFRA Research analyst Tuna N. Amobi, Netflix's first quarter guidance of 7 million global net adds suggests continued gains in international subscribers versus "elevated churn levels" at home. Netflix said that the arrival of new competitors, specifically Disney's (DIS) - Get Report Disney+, dented its subscriber growth in the fourth quarter. Comcast's (CMCSA) - Get Report Peacock and AT&T (T) - Get Report WarnerMedia's HBO Max are also coming to market this spring. 

"Q1 '20 guidance for 7.0M global net adds suggests further international traction (increasingly bolstered by local language content) vs. U.S," Amobi wrote. 

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