How Netflix Is Shaking Up Its Marketing Strategy
Netflix is betting that consumers want to hear a little less about Netflix and a little more about “House of Cards.”
At a time when the streaming TV landscape has never been more robust, Netflix told investors it will focus on promoting its original programs — from the Kevin Spacey political drama to newer shows like “Unbreakable Kimmy Schmidt” and “Bloodline” — instead of simply hawking the virtues and price of the service itself.
On a Wednesday call with investors after reporting better-than-expected subscriber growth, Chief Financial Officer David Wells said Netflix will also shift some of its U.S. marketing budget to its efforts to colonize international markets. The push to reach 200 countries by the end of next year — up from more than 50 right now — is a centerpiece of the company’s plan for growth and, eventually, higher profits.
Having added 4.88 million subscribers in the March quarter, Netflix and its stock price are riding high. The shares closed at a record $560.24 Thursday, and subscribers have topped 62 million worldwide.
With more than 40 million of those users in the U.S., the brand doesn’t need an introduction at home, according to Michael Nathanson, an analyst at MoffettNathanson.
“We’ve all heard of Netflix by now. You need to get people to get hooked on the show that will get you signed up and staying,” Mr. Nathanson said.
While it makes sense to highlight its original programs and ramp up spending abroad where Netflix is less of a household name, the idea that the company would cut U.S. marketing spending right now might seem counterintuitive. In recent months, HBO Now, SlingTV and Sony have all entered the streaming market.
It’s the kind of environment that would typically fuel a marketing and advertising arms race. But according to the company’s shareholder letter, Netflix executives don’t view the new entrants as competitive threats. In fact, Netflix sees the new streaming services as just more encouragement for consumers to cut the cord on traditional pay TV.
Netflix has, in recent years, decreased the amount of money it is spending on paid advertising in the U.S. across media like television, radio and Internet display ads. The company spent about $121 million on advertising last year, down from $143 million in 2013 and $218 million in 2012, according to Kantar Media.
Netflix said Wednesday that it’s moving more marketing dollars online where it can better target audiences, particularly on mobile devices.
“We have migrated over the last two to three years to be more content forward in our marketing, more digital in our marketing, we’re getting smarter and more efficient about how we put those dollars to use,” Mr. Wells said on the earnings call, in response to a question about the decision to cut back on U.S. marketing spending.
The shift to international marketing has already began in earnest, with the company spending $313.7 million abroad in 2014, surpassing the U.S. marketing budget. For now, that growth is coming more cheaply per subscriber than in the U.S., with Netflix spending $42.70 for each new customer added in international markets last year.
In the U.S., Netflix spent $51.54 on marketing for each new domestic streaming subscriber it added in 2014, as it fought against criticisms of slowing growth at home, according to an analysis of the company’s regulatory filings. But part of that spending also reflected a push to retain current customers by promoting new original shows, and viewed that way, Netflix only spent $7.50 per total subscribers in the U.S. (The marketing expense figures Netflix discloses are primarily for advertising but also include payments to affiliates and consumer electronics partners.)
Netflix may be banking on the rest of the industry to help fill the gap as it pares back U.S. ad spending. HBO says its new service won’t cannibalize existing subscriptions, but if marketing for these kinds of services does sway more people to cut the cord, then that could theoretically help Netflix gain subscribers, too.