Why does Netflix even have to come up with more addictive shows all the time?

Why does it make sense for Netflix to increase engagement of users beyond a point, especially when more engagement leads to more burn in terms of cost of producing and serving the content.

There are so many movies, TV series etc. on the platform. Definitely, more than what an average consumer can ever consume throughout their life. What’s the need then?

The answer is simple: More hours spent watching Netflix implies more value of the service for the consumers. On first thought, it seems like a simple idea. But the extent of influence that it can have on people's lives can be amazing.

We should not think of television watching as a basic need that needs to be fulfilled. It’s not like people cap their watching to 2 hours a day. Given the right content, people can spend 8–9–10 hours on it or even more. And then TV competes for everything else you might do in your life — eating out, calls, get-togethers, gym, cycling, reading, walking, shopping, everything else!

This is one of the few industries where you can play with the willingness to pay of the customers. The more the number of original shows created on the platform, the more valuable the platform becomes for the subscribers. More value of the service leads to a couple of income opportunities for Netflix:

1) It makes sense for more consumers to jump on the platform. If they were missing out on 4 omg! crazy! shows, now they’re missing out on 6. The fomo becomes all the more strong.

2) The current customers become even more inelastic in their demand for the service. Thus, it would make sense to increase the price of the service and improve margins in the long term.

There are other important strategic advantages.

Original content:

A. Differentiates the service from the competitors.

B. Ancilliary income opportunities by selling rights for products like soft toys, posters etc.

C. In the long term, they’ll protect their value prop. and margins from an OPEC like body of content studios. (I know OPEC doesn’t have that level of pull now but it’s still a cartel)

D. They have much more freedom w.r.t. the types of shows they can create.

If you look at the pricing of Netflix services, it has indeed increased over the years. A 16$ per month rate seems exorbitant if you’re watching <1 hour of TV a day. But if you’re watching 4–5 hours of TV a day, it becomes a bargain. Because now you’re saving on the fuel you’d have spent to go meet a friend. 😄