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2020 shaping up to be a rough year for Netflix

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Many popular licensed titles are leaving Netflix over the next year or so. The company says it is ready, after spending billions on original content. But has it done enough to stop the 25% of vulnerable subscribers from leaving?

Beloved and popular titles leaving the service

Chances are something you love is leaving Netflix in the next year or so. Content providers, once happy to license content to the streaming giant, are now clawing back their best shows back to use in their services. Moreover, the most prominent titles leaving will hurt the most.

The Office will move from Netflix to NBCU’s streaming service in 2021. According to Nielsen, it was the most popular show on the service in 2018, with 52 million minutes streamed versus Friends 32 million minutes.

Friends will leave Netflix in 2020. WarnerMedia is taking back all 236 episodes of the show and putting them in its HBO Max service, slated to launch later this year.

Netflix’ 2016 deal with Disney expires this year. Between now and 2021, titles like Mary Poppins Returns, Ralph Breaks the Internet, and The Incredibles 2 will leave, along with Star Wars and Marvel titles.

Company executive claim to have been preparing for the day when content providers take back their shows for their services. So, is it ready?

Original content dominates spending, but not consumption

Netflix has been diverting an increasing amount of its massive content spending toward the creation of original content. Of the rumored $13 billion the company spent on content last year, 85% went toward original content creation. As of mid-2018, the company had 245 original shows available with 257 upcoming, giving it more than triple the originals of closest SVOD rival Amazon.

It has also been able to create certified franchised hits like Orange is the New Black and House of Cards. Season three of Stranger Things has just been released on the service and is drawing the attention of many subscribers. According to the company, in the first four days of its release, 40.7 million member accounts have watched at least part of the third season.

Despite all the money spent originals, licensed content still matters a great deal to Netflix. 7Park Data reports that licensed content accounted for 63% of Netflix streams in October 2018. To be sure, originals are becoming a more critical part of the mix. 7Park says original content streams grew from 24% in October 2017 to 37% one year later.

What will happen when the content leaves?

Netflix has done an incredible job growing the number of subscribers since streaming launched in 2007. It has grown subscribers every year since then and still manages to turn in creditable growth in mature markets like the U.S. Last quarter, the company added 1.74 million paid customers in the U.S. to reach over 60 million.

However, losing so many great shows and movies to new streaming services like Disney+ and HBO Max is bound to have an impact. For example, a new survey of 1,004 Netflix users by KilltheCableBill shows that a quarter think the service is too expensive. This price sensitive group could be particularly vulnerable to the loss of so much great content, especially if they’re looking to save money so they can afford one of the new services.

When Netflix reports Q2 results next week, likely none of the content pressures building will have any impact. The company is forecasting that it will add 5 million new paid streamers to reach 154 million paid customers worldwide. However, Q2 2020 could be a completely different picture as the content losses begin to exact a toll and competition ratchets up from Disney, WarnerMedia, and NBCU.

Why it matters

Netflix is playing a delicate balancing act as content providers take back the content they licensed to the company for their services.

Company executives say they are ready, after investing $11 billion in original content in 2018 alone.

It has produced certified hits, but a lot of viewing still accrues to licensed content.

The company runs the risk of growth stalling in 2020 as popular licensed content leaves the services, rival services launch, and vulnerable customers follow favorites to competitor services.

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