Netflix Isn't Worried About Losing Licensed Content

Two kids watching Netflix on a laptop.

Licensed content is extremely important to Netflix 's (NASDAQ: NFLX) content library. People love to watch reruns of their favorite shows or catch up with current series. The top series on Netflix, by viewing hours, is consistently The Walking Dead , according to data from Parrot Analytics .

But Netflix is at risk of losing a lot of licensed content over the next few years as media companies like Disney (NYSE: DIS) and Comcast 's (NASDAQ: CMCSA) NBCUniversal launch their own direct-to-consumerstreaming video services. The company's chief content officer, Ted Sarandos, gave some additional details about Netflix viewing to indicate the company is well positioned to manage the loss of some of its most valuable content.

"I'd say the vast majority of the content that's watched on Netflix are our original content brands," Sarandos said on Netflix's fourth-quarter earnings call . He noted that shows like Grey's Anatomy or Friends have a lot of hours of content, but if you rank series by individual seasons, "it's dominated primarily by our original content brands."

Sharing more information about originals

Netflix's fourth-quarter letter to shareholders included a lot of viewer metrics, something management hasn't shared very much of in the past. It said Bird Box reached 80 million viewers in its first four weeks. It estimates You and Sex Education will reach 40 million households in their first four weeks. And it listed a slate of original series that have surpassed 10 million views already.

Netflix is doing an excellent job driving viewers to its original content. It's using its in-app real estate to promote new shows, but it's also increasingly spending marketing dollars on promoting individual titles instead of its brand.

CEO Reed Hastings says Netflix's unscripted originals have already surpassed the 50% mark in terms of viewer hours for the category. That's from practically 0 in 2017. Unscripted is a category that doesn't receive much of Netflix's marketing budget, but it can take up a lot of screen real estate for viewers who have shown interest in the category.

Hastings says originals are on track to account for the majority of viewing in other categories as well, but he didn't give further details.

Every hour counts

Netflix provided another interesting statistic it's never shared before. U.S. subscribers spend about 100 million hours per day watching Netflix on TV each day. Management also estimates that consumers have about 1 billion hours of television time per day total.

Management emphasized that it doesn't see itself competing against any specific new entrant in the streaming video space, such as Disney+ or NBCUniversal's forthcoming service, just against anything consumed via television: video games, linear TV, streaming, and other home video.

Hastings appeared optimistic that Disney+, of which he said he'll probably be a subscriber , will take away screen time from other categories, not Netflix.

Even while Netflix is growing the share of viewing hours its originals take on its platform, there's still no denying the fact that some of Netflix's competitors will soon have the rights to some of its most popular content. If Netflix wants to keep growing its share of television screen time, it needs to replace a lot of hours of content.

The good news is that Netflix has time. A lot of the most popular licensed content is locked up for several more years. It has the rights to The Office and Parks and Recreation through 2021. It has the rights to shows like Grey's Anatomy as long as they're still in their series run on broadcast television.

The original content budget keeps getting bigger, and it builds on top of itself. Netflix has only been doing this for six years, so none of its series are the decade-long sagas people love to rewatch from the beginning. Investors should expect Netflix's content spending to keep climbing over the next few years as it prepares for more licensed content to leave the platform.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix and Walt Disney. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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