Netflix Focuses on Targeted, Premium Content, and It Works
Netflix doesn't need to be all things to all people, it just needs to deliver high quality content, to the right target audience, for the right price. And it's working. Netflix earnings blew past expectations. The company reported 31 cents per share in the second quarter, swinging into the black from a loss in the year-earlier quarter. Netflix's new push for original content is part of a bigger strategy—understanding exactly what its user base wants, and delivering it to them. It's the shift from being a distributor to truly being a programmer.
And with that shift from distributor to programmer, comes a new focus on exclusive content. With the rollout of more original shows, CEO Reed Hastings said on the post-earnings call, that users and investors will see a "redefinition and rebroadening of what Netflix is to its customers." And what that means, is "focusing on moving more and more towards exclusive content."
Hastings says that people will stick with Netflix if they feel like what they get on the service really can't be found elsewhere. The content, Hastings says needs to "reinforce what you would lose if you're not on Netflix."
"House of Cards" could not have had a more different target audience than "Hemlock Grove", which launched last Friday. The former appeals to a premium HBO audience of educated adults who also subscribe to HBO. The latter is for young men, who may spend more time playing video games than watching linear TV. But Netflix has so much information about who its viewers are—and what and how they watch—it can, and has, made shows for both demographics work.
In Hastings "letter to shareholders", he writes about House of Cards that "The global viewing and high level of engagement with the show increased our confidence in our ability to pick shows Netflix members will embrace." Translation: data combined with premium production talent yields strong results. He goes on: "The high level of viewer satisfaction implies we are able to target the right audience without the benefit of existing broadcast or cable viewing data and the strong viewing across all our markets gives us faith in our ability to create global content brands in a cost-effective, efficient way."
Bottom line: Hastings believes he can keep up the success of "House of Cards" and "Hemlock Grove". But he's not rushing to up the company's number of originals to 20 a year just yet, saying the company will "modestly increase" but he's cautious not to take the company's commitments to a dramatically higher level on the success of just a handful of shows.
Netflix bears, like Wedbush's Michael Pachter persist, continuing to raise questions about how long Netflix can keep up this run. But for now, with the stock up dramatically on the numbers, Hastings is continuing to earn back Wall Street's respect after the company's PR misstep and the stock's plummet in 2011.
—By CNBC's Julia Boorstin; Follow her on Twitter: @JBoorstin