Netflix will spend ‘vast majority’ of its $17 billion content budget on originals in 2024 despite a deluge of licensed hit shows up for grabs

Netflix has spent billions of dollars to license hit shows like Grey’s Anatomy, How I Met Your Mother, and Seinfeld, as studios gave up on beating the streaming leader and instead decided to play nice by renting their vast libraries of content to it. The strategy has given Netflix one of the biggest repositories of content in streaming and helps it outshine its rivals for subscribers.

But Netflix has no plans to slow down on creating its own original movies and series. In fact, the company says it will spend the majority of its $17 billion content budget this year on producing its own exclusive material.

“There has been more licensed content opportunity, but the vast majority of our content spend is still into original programming, and it is likely to continue to be,” chief financial officer Spence Neumann said during Netflix’s latest quarterly earnings call last week.

In recent years, Netflix has built its business around producing hit original content. Titles like supernatural series Stranger Things, Regency-era romance Bridgerton, and coming-of-age comedy Wednesday have driven the cultural zeitgeist.

To add and keep subscribers, Netflix must find the correct mix between spending on big, flashy productions and licensing what is usually cheaper content.

The emphasis on original content comes as somewhat of a surprise following Netflix’s recent success with licensing. After Netflix’s licensed hit Suits broke streaming records four years after it stopped airing on USA Network, Hollywood studios became more willing to give the streamer more content than they had previously. Major media companies, once focused on building their own streaming platforms from scratch, had largely stopped selling their content rights to their rival. But now struggling with debt and slow growth, studios like Disney and Warner Bros. have begun licensing their shows to Netflix again.

Late last year, Netflix inked a deal with Disney to license 14 series from its various networks for 18 months, including science fiction show Lost, drama This Is Us, sitcom How I Met Your Mother, and sports documentary series ESPN 30 for 30. In January, Warner Bros. Discovery followed suit by licensing Netflix the rights to romantic comedy Sex and the City. ABC’s Grey’s Anatomy, which Netflix first made a play for in 2010, routinely ranks among the most-watched acquired titles, according to television audience measurement firm Nielsen. And the streamer is still riding a deal it made for Seinfeld in 2019, which expires in 2026 and reportedly cost $500 million.

Still, Netflix’s lean toward originals aligns with where subscribers spend their time, company data shows. Sixty-two of the top 100 most-watched titles during the first six months of 2023 were Netflix originals, according to Netflix’s most recent viewership numbers. Top exclusive shows from the period included action series The Night Agent, comedy-drama Ginny & Georgia, and Korean thriller The Glory.

In fact, out of the top 25 most-watched titles globally from the time period, only four were licensed, including Spanish telenovela La Reina del Sur and NBC’s season 4 of supernatural drama Manifest.

While Netflix hasn’t yet released a report for the latter half of 2023 or for 2024, recent data from Nielsen tells a similar story. Netflix has dominated streaming viewership in the first 12 weeks of 2024. The streamer’s originals, including reality dating series Love Is Blind and crime drama Griselda, top the list of original programming for streaming services in 10 out of 12 weeks. In the same category, Netflix has each week held at least half of the top 10 spots, showing the breadth of original programming.

View this interactive chart on Fortune.com

Netflix’s content budget is stabilizing after years of growth, interrupted by spending dips in 2020 due to COVID and in 2023 due to the Hollywood actor and writer strikes. After peaking at $17.5 billion in 2021, Netflix’s spending sank to $12.6 billion last year. The company expects to shell out $17 billion on television shows and movies this year, with the focus on a more limited number of productions that are more likely to be hits instead of it prioritizing quantity, Bloomberg reported. The strategy shift follows a purge of original series last year, including coming-of-age drama Sex Education, drama Firefly Lane, and fantasy series Shadow and Bone. 

Is original content still king?

While Netflix will continue to spend the majority of its budget on originals, the sentiment that original content is king isn’t shared by everyone in the industry. Generally speaking, the industry is shifting towards prioritizing licensed content, said Neal Zuckerman, senior partner at Boston Consulting Group.

“We went through an era where original content was the right answer,” he told Fortune. “Then everyone realized that’s an expensive game to be in, so the prices went up,” referring to streaming subscription prices that have, in the case of Netflix’s standard tier, doubled since they launched.

As a result of industry-wide price hikes, many consumers cancel their subscriptions after they’ve watched the shows they want on a particular service, Zuckerman said. To reduce the churn, streaming companies must refocus on licensed content, he said.

“The most important thing these days is not consumer acquisition, but retention,” he said. While original productions typically attract viewers to a streaming service, it's the licensed content that gets them to stay. Original content can play a role in reducing churn, but there’s a finite number of original series a company can make because of the cost, he said. The number of licensed titles available is much bigger.

In 2016, Netflix’s then-CFO David Wells said the streaming platform aimed for a 50-50 split on licensed and original content. At the time, which was four years after Netflix released its first original show Lilyhammer, the company’s catalog was less than 5% original and exclusive titles, according to market researcher Ampere Analysis. Netflix built its exclusive content business by shifting billions into production and making major deals with showrunners, including Grey’s Anatomy’s Shonda Rhimes and Glee’s Ryan Murphy.

As of July 2023, originals accounted for 55% of the company’s U.S. catalog of 6,600 titles, according to What’s on Netflix, an independent site reporting on the streaming company. It is unclear how many original titles make up Netflix’s global inventory of more than 18,000 shows and movies.

Even if overall spending favors originals, a mix of content is still the goal for Netflix. “We’ll always compliment [originals] with great licensed content for that variety and quality for our members,” Neumann said during the recent earnings call. “But original content is still our future too.”

This story was originally featured on Fortune.com