Should Netflix prioritize producing more original content or licensing popular third-party shows and movies?

Introduction

The question at hand is whether Netflix should prioritize producing more original content or licensing popular third-party shows and movies. This trade-off is crucial for Netflix's content strategy and directly impacts user acquisition, retention, and overall business growth. In my response, I'll analyze the key factors influencing this decision, propose a hypothesis, design an experiment to test it, and provide a data-driven recommendation.

Step 1

Clarifying Questions (3 minutes)

• What's the current split between original and licensed content in terms of budget allocation and viewing hours?

• Why it matters: This baseline helps us understand the current strategy and its effectiveness.
• Hypothetical answer: 60% original, 40% licensed in budget; 50% original, 50% licensed in viewing hours.
• Impact: If original content is outperforming in terms of viewing hours per dollar spent, it might suggest leaning towards more original content.

• How does the cost structure differ between producing original content and licensing third-party content?

• Why it matters: Understanding the financial implications is crucial for long-term sustainability.
• Hypothetical answer: Original content has higher upfront costs but long-term ownership benefits; licensing has lower initial costs but ongoing fees.
• Impact: If original content proves more cost-effective in the long run, it could justify higher initial investments.

• What are the current user acquisition and churn rates, and how do they correlate with content types?

• Why it matters: This helps us understand which content strategy is more effective for growing and retaining the user base.
• Hypothetical answer: Original content drives more new sign-ups, while licensed content contributes more to retention.
• Impact: We might need to balance both strategies to optimize for both growth and retention.

• How does the global expansion strategy factor into this decision?

• Why it matters: Different markets may have varying preferences and licensing restrictions.
• Hypothetical answer: Emerging markets show a stronger preference for local original content.
• Impact: This might push us towards increasing original content production, especially in key growth markets.

• What are the current technological capabilities for personalization and recommendation of different content types?

• Why it matters: The ability to surface the right content to users affects engagement and perceived value.
• Hypothetical answer: Our algorithms are equally effective for both original and licensed content.
• Impact: If there's no significant difference, this factor wouldn't heavily influence our decision.