Netflix has said repeatedly that investing in new original shows and movies spurs subscriber growth, which is the main reason the company has swung increasingly in that direction over the past few years.
But the exact relationship between the release of a new show, and signing up a new subscriber, hasn’t always been clear.
On Netflix’s last quarterly earnings call, UBS analyst Doug Mitchelson asked Netflix’s top executives to lay that relationship out in a bit more detail.
“Is it tangible title by title?” Mitchelson asked. “Are you making just an overall estimate based on spending or number [of shows] released?”
Here’s how Netflix CEO Reed Hastings responded:
“Think of it as, it is a cumulative effect. Very few people will join Netflix just because of a single title, but there is a tipping point. You have one more title that has great excitement, that you are hearing a lot about, and that triggers you to finally sign up for Netflix. So it is a cumulative effect of all of these … the basic demand creation is increasing as people get more comfortable and more aware of the idea of internet television. Where you do not get the commercial interruptions, where you just get to watch when and where you want. So those are the big drivers. And then the things that capture the demand are really these big launches that we are doing of particular title franchises.”
So Netflix gets subscribers a bit like one of Ernest Hemingway’s characters famously goes bankrupt: “Two ways … Gradually and then suddenly.”
Netflix CFO David Wells added that the company has found returning shows do a better job of boosting subscriber growth than brand-new ones.
“If they are brand new shows … if they are having to punch into the consciousness of the consumer, they do not tend to draw new subscribers in as great of numbers as some of our existing shows,” Wells said.
Netflix had a huge beat on its Q4 subscriber growth numbers, both in the US and internationally, trouncing both Wall Street expectations and its own guidance.