Is Netflix, Inc. (NFLX) Right by Focusing on Kids Segment for Its Next Wave of Growth?

Netflix, Inc. (NASDAQ:NFLX) is planning to focus more on kid’s programming as it continues to look for new opportunities of growth. Through the plan, the streaming giant is to spend a good portion of its $5 billion content budget in developing and acquiring new content for kids. The new strategy begs the question, is it the right move?

Creating Loyal Customer Base

Focusing on kids is part of a bigger plan that seeks to create a long-term loyal customer base. Unlike adults, kids will always stay loyal to their favorite shows until they mature. It is an advantage Netflix, Inc. (NASDAQ:NFLX) would wish to leverage, as it continues to grapple with skyrocketing content costs.

A majority of Netflix subscription base is made of millennials. By focusing on this age group, the company hopes to keep its loyal customers coming back for more in the process of shrugging off competition.

Kids provide Netflix, Inc. (NASDAQ:NFLX) the advantage of not having to pursue new shows for different geographies. The fact that a high percentage of kids programs are popular across different geographies further justifies why the company is right to focus on kids.

Seven out of ten popular shows watched by kids now, are popular in all countries. As it stands, the company does not have to spend an extra amount just to meet customer tastes in different geographies.

Clamping Down On Soaring Content Costs

Content customization costs have been on the rise arousing concerns of the impact they could have on earnings going forward. By focusing on kids, Netflix should be able to increase its subscription base on the international scene while keeping its content costs low.

Researchers at Barclay believe the rate at which content is being produced is five times the time, which consumers are spending to watch. The same is not good for business for traditional cable networks, as they have to increase their spending on new programs.

Having a greater choice is always good for business as it goes a long way to attracting more subscribers. However, it also poses the threat of affecting profit margins.

Having a greater choice that can attract big audiences is what Netflix, Inc. (NASDAQ:NFLX) needs the most if it is to stem down rising content costs. This is the only way the network can be able to attract more subscribers, especially on the international scene while also taking care of costs.

Bolstering Kids Library

Paying more attention to kid’s content is not something new; HBO having already shown it is the way to go. The streaming company continues to bolster its library with kid’s content having already debuted ‘Sesame Street.’

Just like HBO, Netflix, Inc. (NASDAQ:NFLX) does not want to be left behind when it comes to pursuing growth opportunities on kid’s content. A redesign of its kid’s section all but affirms its commitment to supplementing its revenue from adult content with a focus on the niche market.

To make the service more exciting and enticing to kids, the company has tweaked the portal that handles kid’s content. A redesign of the interface will see it feature new icons that kids can relate easily with.

Bottom Line

Willingness to adapt to changing times and trends has allowed Netflix to become a juggernaut it is in the streaming business. The next battle in the streaming business will be fought on keeping loyal customers happy. Any company that wins this battle should be able to enjoy greater flexibility when it comes to pricing.

Focusing on kids programming allows Netflix, Inc. (NASDAQ:NFLX) to create a loyal subscription base that should guarantee a stable revenue stream going forward. How well it succeed on this front will have a huge impact on its earnings going forward, which is always a key driver of the stock price.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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