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Netflix Is Gearing Up for Greatness. What’s This Company Got Up Its Sleeve?

Competition in the streaming industry is fierce, with content at the center of the fight to the top. Many of the biggest names in streaming have content libraries that span decades. However, Netflix (NASDAQ: NFLX) is playing catch-up after entering original content production in 2013. The company is now trying to develop franchises that compete with brands such as Star Wars and Harry Potter.

Here’s why the company’s focus on popularizing new franchises will help create sustained growth.

Challenging competition

Netflix released its original action thriller The Gray Man on July 22. It became the No. 1 most-watched film on the service in the period spanning July 18-24. The movie amassed 88.5 million viewing hours in three days, 159% more than the second-most watched film of the week, The Sea BeastThe Gray Man comes from Marvel duo Anthony and Joe Russo, directors of Avengers: Infinity War and Endgame, who specialize in growing franchises.

A few days after its launch, Netflix announced that The Gray Man universe would expand with a sequel and a spin-off. The move comes as the company competes against industry leaders like Disney (NYSE: DIS) and Warner Bros. Discovery, whose content catalogs include massive franchises such as Marvel, Star Wars, Harry Potter, DC, and more. Netflix is at a disadvantage in terms of content as it moves away from licensing deals and original titles become increasingly important.

Netflix’s library has shrunk by over 35% since 2015, with its film offerings seeing a 55% reduction. Meanwhile, its competitors have expanded their libraries substantially through studio acquisitions. Disney acquired Twenty-First Century Fox in 2017 for $71.3 billion, adding brands such as Avatar, Kingsman, and The Simpsons to its catalog. Likewise, Amazon spent $8.5 billion in March to acquire MGM Studios, which gave Prime Video the James Bond, Rocky, and Legally Blonde franchises. 

Netflix would do well to make a similar studio acquisition, but the company is betting on itself to grow and establish new franchises. It has had success doing just that with its TV series Stranger Things and Bridgerton. If it can do the same with film brands, the platform will be better positioned to attract subscribers. 

Drawing subscribers 

Popular franchises are one of the most powerful methods to grow viewership. Consumers want to see additional stories for their favorite characters and have proven that time and time again. Disney has substantially grown Disney+ by creating Star Wars and Marvel series exclusive to the platform. As a result, millions of fans must subscribe to Disney+ to keep up with the extended storylines.  

Disney+ launched in November 2019, attracting 10 million subscribers in its first month. Less than three years later, the service has grown to 137.7 million members. Over the last three years, Disney+ has offered a consistent schedule of Star Wars and Marvel series, releasing episodes week to week and leaving very little time between releases for fans to drop the Disney streamer. In fact, the platform’s biggest quarterly growth took place between Q4 2020 and Q1 2021, with subscribers rising by 28.7%. The increase occurred during the intense marketing campaign in the run-up to Disney+’s first Marvel series, WandaVision, launching in February 2021.

Netflix has seen similar success in using popular franchises to encourage subscriber retention. After projecting a loss of 2 million subscribers in Q2 2022, the company lost just 970,000 members. Touching on the better-than-expected result, co-CEO Reed Hastings said in an earnings call, “If there was a single thing, we might say Stranger Things.” The show’s fourth season premiered on May 27 and helped Netflix retain over a million subscribers.

What’s next

Netflix is on the right track by bringing on Marvel legends Anthony and Joe Russo to expand an original franchise. With an audience score of 91% on Rotten Tomatoes, The Gray Man‘s extended universe is off to a great start. Additionally, the platform’s most-watched film of all time is currently the 2021 action-comedy Red Notice, with 364 million viewing hours. Netflix has already announced plans for two sequels as it continues to grow its library of popular franchises. 

Moreover, although the subsequent season of Stranger Things will be the final installment, the company has already announced a spin-off series in the works. Suppose the streaming pioneer can continue pulling in big numbers with the planned sequels to its original films. In that case, Netflix will be better positioned to foster subscriber growth and stay competitive.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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