The streaming giant is perhaps best known for premium scripted shows like Orange is the New Black and Stranger Things. But the company plans to move more aggressively into talent competitions, game shows and other unscripted television formats, according to a recent interview. Netflix shares closed 11.6% higher on Wednesday at $547.53.
At a panel discussion hosted by Deadline, Netflix's directors of unscripted originals and acquisitions, Nat Grouille and Sean Hancock, told an audience that they're been crafting an unscripted strategy for several years, and plans to dive further into the format. Netflix is looking for a big breakout hit in the vein of Survivor or Big Brother that could similarly run for 20 years.
"Netflix is adopting a 'we're going to be the supermarket of content' position in the category," said Stephen Beck, founder of the management consulting firm cg42. "If you look at how you preserve your position as one of those two, three or four services that the average consumer is going to have, one of the ways to do that is to have diversity."
Netflix executives said that one of the goals of the unscripted push is to appeal to families. Unlike Disney+ (DIS) - Get Report, for example, Netflix is not viewed in the marketplace as a particularly family-friendly service.
“One thing is we could probably do more of is...family entertainment, which we probably haven’t done enough of yet," said Hancock. "That’s one area that we want to crack because that’s where you get the really big, culturally zeitgeist hits. The kind of show that you could explain to a caveman and they’d get it."
Unscripted formats come with another advantage: they are far less expensive to make than your average original scripted show, noted Wedbush analyst Michael Pachter.
"They can take a lot of shots on goal," Pachter said in an email. "They are following the network model (sans sports), which is proven, so I think it makes sense."
Netflix has had some modest success with unscripted shows: Floor is Lava, an obstacle-course competition that premiered on Netflix in June, earned some buzz this summer. Rhythm + Flow, a rap competition show hosted by Cardi B, Chance the Rapper and T.I., was renewed for a second season. Matchmaking show Love is Blind, for example, was a guilty pleasure this spring, and is expected to film season two in 2021.
A genuine breakout hit has been elusive so far. But the relative cost efficiencies in unscripted shows mean that Netflix has room to experiment. Although the cost of a show varies according to a number of factors, unscripted shows generally run in the six figures per episode; a premium scripted show can cost millions per episode.
As the streaming market grows more saturated, investors are keenly focused on Netflix's subscriber metrics -- and whether newer options like Disney+, Comcast's (CMCSA) - Get Report Peacock or Apple TV+ will disrupt Netflix's subscriber base.
Netflix added 10.1 million paying subscribers in the second quarter, but issued weaker-than-expected guidance for the current quarter. Netflix expects to add just 2.5 million paid subscribers in the third quarter, less than half the consensus estimate of 5.27 million.
Netflix executives pinned the weak guidance on a pull-forward effect, whereby customers who might have joined in the third quarter instead signed up when COVID-10 lockdowns took effect.
Nonetheless, unscripted content could help Netflix lock in its position as the first stop for home entertainment in the minds of consumers.
"That will help, that will preserve their position in the average consumer's wallet as this space becomes more competitive," Beck added. "That’s how you have to look at their investments."