Netflix Content Budget May Grow to $8 Billion in 2018

Reed Hastings - Mobile World Congress Speech in Barcelona - Getty - H 2017
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The streamer added 5.3 million new members during the third quarter.

Less than two weeks after announcing plans to raise the price of its subscriptions, Netflix has revealed that it may spend as much as $8 billion on content next year.

The streamer on Oct. 5 announced that it would raise the cost of its most popular U.S. plan by $1 to $11 per month, a move largely seen as helping to offset its growing content budget. It also raised the price on its 4K video plan, which will soon cost $13.99 per month.

The Los Gatos, Calif., company has been pumping resources into programming over the last several years, with a content budget expected to reach $6 billion this year. Executives had previously said they expected to spend $7 billion in 2018. One reason why content spending may be going up is because Netflix plans to release 80 films in 2018, content chief Ted Sarandos revealed during a call with investors. Among those projects is the Robert De Niro vehicle The Irishman

Netflix on Monday reported third-quarter revenue of $2.99 billion, up 30 percent from the same period last year. It brought in earnings of 29 cents per share, up from 12 cents per share during the third quarter of 2016.

Meanwhile, Netflix grew its subscriber base by 850,000 members in the U.S. and 4.45 million members internationally. That adds up to 5.3 million new members during the third quarter. 

Analysts, as polled by Thomson Reuters, expected the streamer to report revenue of $2.97 billion and earnings of 32 cents per share. Wall Street also expected Netflix to add 784,000 U.S. subscribers and 3.62 million international subscribers. 

In a written note to investors, Netflix CEO Reed Hastings acknowledged recent decisions by Disney and other studios to keep their films and TV shows off Netflix. "While we have multiyear deals in place preventing any sudden reduction in content licensing, the long-term trends are clear," he wrote. "Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes." The exec went on to note that Netflix has $17 billion in content commitments over the next several years, with a growing percentage of its library made up of owned content. Netflix has inked deals directly with content creators, including Shonda Rhimes, as it seeks to own more of its original programming.

Sarandos downplayed the impact of Disney's move to launch its own over-the-top streaming service. "It's exciting that everyone is trying to make OTT television better and better," he said. "We just have to focus on creating content that our members can't live without." Hastings, meanwhile, noted that the Disney content was a small piece of its international programming offering. 

When asked about competition from Amazon, which is said to be searching for its own Game of Thrones, Hastings said with a laugh, "So is [HBO topper] Richard Plepler." Sarandos chimed in, "So is Ted Sarandos. So is everybody." 

For the fourth quarter, Netflix expects to add 6.3 million subscribers, down from 7.05 million during the same period a year ago. A slowdown in growth could be the result of the price increase, which is expected to take effect over the next few months. "Increased revenue over time will help us grow our content offering and continue our global operating margin growth," Hastings explained in the note. 

During the conference call, executives said that there isn't a direct connection between the price hike and the growth in spending. "Many investors have criticized us in the past for being under priced," said Netflix CFO David Wells, adding that the price increase "has been planned for some time." 

Asked during the call about whether Netflix would be interested in buying The Weinstein Co. in the wake of sexual assault allegations against Harvey Weinstein, Hastings said "it would be extremely unlikely for us to be a bidder for the firm."

Netflix shares closed the day up more than 1 percent, or about $3.19, to $202.68. The company's stock hit $200 per share for the first time on Friday after strong investor support for the price increase. At one point, shares were up more than 4 percent during afterhours trading on Monday.