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Netflix Opening Online Store to Sell Licensed Merch From Hit Shows

Netflix is Becoming Amazon, Amazon is Becoming Netflix

By Gary Symons

TLL Editor in Chief

Amazon has become the single greatest competitor for Netflix in terms of members, but now Netflix is getting a bit of its own back by moving into the ecommerce space, selling products to its more than 200 million paying subscribers.

Netflix on Thursday launched new online store selling products tied through licensing agreements with hit shows airing on the streaming service. For example, Netflix has already prepared a clothing line (along with some live events) tied to its spicy rom-com hit Bridgerton, as well as various consumer products for the upcoming new seasons of Stranger Things, The Witcher, and La Casa de Papel (known in English as Money Heist), and several others.

The move is part of a wider strategic shift for Netflix, which faces increased competition in the streaming space, and is currently almost wholly dependent on memberships for its revenue.

As reported earlier in The Licensing Letter, Netflix is also launching a new subscription service for video games, similar to Steam or Apple Arcade.

For licensing companies or licensees, the Netflix evolution represents a potentially rich vein of new business, so who’s the key person to know? That would be Josh Simon, a former Nike executive who now heads the Netflix consumer products division. Since Simon was hired in March 2020, the CP division of Netflix has grown to 60 people, and the company is fast making in-roads with big retailers to sell its products, including Walmart, Amazon, Sephora, and Target.

Screenshot of the new Netflix ecommerce site, Netflix.shop, which launched Thursday, June 10, selling merchandise linked to hit Netflix shows and films.

The store itself was built on Shopify, the tech company that has grown to become the dominant force in ecommerce technology, allowing Netflix to scale up without the usual fuss of having to build its own technology.

The site is the next logical step for a company that has gotten serious about the retail business in the last year, an effort led by the executive Josh Simon, who runs Netflix’s consumer products division.

Mr. Simon joined the company in March 2020 after working in a similar role at Nike. On his watch, the consumer products team has grown to 60 people, from 20, and Netflix has made deals with Walmart, Sephora, Amazon and Target to sell clothes, toys, beauty kits and housewares, among other items, related to its series and films.

Netflix created the online store with the tech company Shopify. Mr. Simon described it as a “boutique,” adding that products tied to only a few Netflix shows will be included in its first few weeks. However, with such a major investment in its CP division, the company obviously intends to pursue rapid growth in a very lucrative market.

The sale of licensed products from shows, films and entertainment characters is a $50 billion market in the US, and roughly $128 billion globally, with the biggest player by far being Disney.

Simon is realistic about Netflix’s place in the market, saying the money generated by the shopping site is not expected to match the amount Netflix makes through its deals with store chains and fashion brands. “Practically speaking, the revenue will come more from those partners around the world in terms of sheer footprint and number of locations and magnitude,” he said.

While Netflix is now moving into consumer products and ecommerce, it isn’t truly trying to compete head to head with Amazon. Rather, it’s model is more similar to Disney, which has long tied consumer products to its hugely successful movie and TV series franchises. From theme parks to souvenirs to apparel to toys, Disney has long made CP a lynchpin of its revenue and marketing strategy, seeing consumer products as a way to market its content, and vice versa.

With 204 million subscribers as of January, Netflix is now in a position where it has a similar, existing fan base to which it can market consumer products. However, one major difference is that Netflix can’t compete with Disney on kid-friendly content, though it does have a kid’s content section on its service. Disney also has an advantage in that it creates content that literally spans generations, ranging from early animated movies, to the Star Wars franchise that began its run in 1977. Netflix is more similar to a TV network, running series over the shorter term, with very few lasting more than five to seven years.

On the other hand, what Netflix does have is critical acclaim and audience acceptance. The company used to say it wanted to be HBO before HBO became Netflix, and that philosophy drove the streamer to either create or buy elevated content that has put it far above any other content creator when it comes to winning awards for film and TV series. While not thought of as a studio, Netflix earned more Emmy nominations than any other company last year, and the most Oscar nominations of any studio this year.

To be fair, this past year is unique in that many of the best films have been delayed due to the pandemic, but Netflix can still lay claim to being among the top studios in North America for quality content. The question will be whether Netflix can turn that critical acclaim and its hefty subscriber base into a profitable revenue stream for consumer products.

 

As Netflix tries to compete with Disney on a global scale, it is trying to create franchises that can have the same impact on culture as “Star Wars” or “Toy Story.”

This still starts with the shows. The company has identified properties it thinks fit the bill, and is planning a spinoff and new seasons of “Bridgerton,” an anime spinoff and sequels or prequels to “The Witcher,” and a Korean version of “La Casa de Papel.”

But the company has also begun to realize how a podcast or a Halloween costume can keep its programs relevant in between new seasons. Netflix has hired or is hiring new heads of consumer products, podcasts and video games.

Netflix has been dabbling in all three areas for a few years, and has yet to have much success selling consumer products. Most industry executives blame two of the company’s foundational strategies. Netflix drops every episode of its show at once, and releases more shows than anyone could ever watch. Its business model encourages people to obsess over a show for a week or two, and then move onto the next one.

The most valuable entertainment franchises are built around properties that air on TV every day, or multipart movie series (often based on books or comic books). Selling toys requires constant engagement. Kids shows that are on every day are a great way to remind a child that they want a stuffed animal. (When Nickelodeon moved a show from every day to just Saturday, sales fell by 80%, according to Jeremy Padawer, an executive with Jazwares.)

Netflix has experimented with releasing episodes in bunches instead of all at once, but some within Netflix believe it will have more success creating live events and in-person experiences than licensing toys. Many young customers prefer to spend their time and money on experiences instead of tangible goods these days.

It’s worth remembering that Netflix has been making TV shows and movies for less than a decade. Making big franchises is difficult and expensive. One of Netflix’s most expensive efforts to create a new franchise, “Jupiter’s Legacy,” got canceled after one season. Disney has the benefit of nearly a century of trial and error.

That’s one reason Netflix is quick to lower expectations for many of these initiatives. The store and the podcasts are just a form of marketing. They aren’t about to be huge businesses. The most important thing they can do right now, they say, is get better at animation, and movies and international shows. The company is going to release more than 400 foreign-language titles from 30 countries next year.

But Netflix knows it needs to figure this all out. The company isn’t going to add 25 million customers a year forever. There will come a point at which the company has signed up so many people that its user growth will slow and it will need to find an alternative. That could be now, or it could be in 2025.

That’s one reason why top executives have stopped referring to Netflix as a video service. They call it an entertainment company. This is semantics, but it signals the company’s growing ambitions beyond just TV.

Take video games. the company has had a lot of success producing TV shows based on video games, like “The Witcher.” It has also experimented with choose-your-own adventure storytelling, which is a bridge between games and TV shows.

Executives around the company clam up when you ask them about their plans for gaming. They say they haven’t decided yet if they want to make games that are new and unrelated to shows, or just extensions. But if you go by their public proclamations and the private chatter, video games is one area where Netflix could be preparing a major push.

It’s also the only one of these businesses that could rival its streaming app – at least until it opens a Netflix theme park. – Lucas Shaw

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