Why Netflix Is Doubling Down On Original Content, Even If People Aren't Watching It

Streaming media companies like Netflix and Hulu need to differentiate themselves from their cable company counterparts with original, exclusive content that makes it easier for customers to rationalize paying another bill each month. Netflix, most notably, has its beloved "House of Cards" series, and the company yesterday announced that it will release four exclusive Adam Sandler movies to its subscribers. Exclusivity like this is designed to draw more consumer interest, as people all over the world love Adam Sandler movies (whether they admit it or not).

Comparable streaming services like Hulu+ and Amazon's Instant Video also offer original programming, but they aren't talked about nearly to the degree that Netflix's shows have been. When your business is to deliver old (but beloved) video content to subscribers, exclusive shows are the thing to differentiate one service from another, so they better be good. Netflix has so far shown itself the only “network” that can tap into the zeitgeist to make good shows that capture public attention on any noteworthy scale.

“Good" doesn't really come along without "expensive" right behind it. The first season of "House of Cards" cost $100 million to make, but it made Netflix a news item again. "You don’t see members of the media writing about Netflix offering movies that are five to 10 years old," says Dan Rayburn, principal analyst at Frost & Sullivan. "Exclusive content keeps Netflix's name in the press.”

Netflix also has a major advantage over its streaming competitors in that it partners with existing production studios to create such shows. It gets to piggyback on the production experience of professionals, then blast the finished product out to subscribers, numbering 31.7 million in the U.S. On the other hand, Amazon is "building from scratch to create content from its own studios," says Neil Macker of Morningstar. This makes for a slower work pace while Netflix basks in the attention.

"Netflix will not give out any measurements to the public about how original content helps or hurts its business," says Rayburn. "For them to say a show 'is very popular' doesn’t tell us anything. Does it make any money? At some point shareholders will pressure them to reveal specific numbers. If original content reduces churn, then this translates into money saved."

HBO and its streaming app, HBO GO, come at this from the other side of the equation. Parent company Time Warner is pretty much in the business of making television shows, some of which reach HBO subscribers via cable or the HBO GO app. At the same time, HBO would love to move closer to Netflix's business model of building out quality pipes for delivering entertainment to people's homes. But the company's not quite there yet. "HBO's got a lot of subscribers within the paid-TV universe," says Macker. "They're not going to move away from that without thinking about how to do that reasonably."

Because Netflix has already demonstrated multiple times that it can do original content better than any other streaming media company today — to the point that its shows are talked about in workplaces and binged on in weekend-long sessions — it can keep customers happy and keep the fees rolling in.