Netflix (NFLX) won plaudits from Hollywood this week with its first-ever Emmy nominations. But Netflix customers who love James Bond or SpongeBob haven’t been as excited about the world’s biggest streaming service lately.

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Over the past year or so, Netflix has been shaking up its catalog of movies and television shows and even dropping classics like Goldfinger, Scarface and SpongeBob SquarePants. And the cuts will keep coming, analysts warn, even as Netflix spends over $2 billion for licensing rights over the next year. Older movies and TV shows that are available on cable and competing streaming services are most vulnerable.

So far, the new content strategy is working great, at least for Netflix. Its original series, led by the drama House of Cards, grabbed 14 Emmy nominations on Thursday morning -- a first for any Web-only programming. Subscriber numbers are way up, and the company’s stock has almost tripled this year.

On Monday, Netflix reports second-quarter earnings. Wall Street analysts expect a profit of 40 cents a share, with domestic subscribers hitting 30 million. But if the May premiere of its latest original show, Arrested Development, helped lure in even more new customers, the stock could shoot higher.

Clear strategy

So how has Netflix been able to grow so quickly while cutting back on many popular movies and TV shows?

[See related article on the history of change at Netflix]

Just in the last year or so, it shed thousands of old movies -- from those named above to classic comedies Big and Young Frankenstein to dramas like Elizabeth. Netflix also dropped TV shows from A&E Networks like Storage Wars and Pawn Stars. And last month, it shed a ton of Viacom (VIA) content, including kids' shows from the Nickelodeon channel (farewell, SpongeBob).

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At first blush, it seems counterintuitive that Netflix can grow while dropping popular content -- but there’s a clear strategy behind the moves, based on data about which shows help retain subscribers or bring in new customers.

Netflix declined to make its executives available to answer questions about its content strategy. However, prior public comments and two recent surveys help shed light on the data that Netflix uses to make its decisions.

Netflix started as a DVD rental service where the goal was to carry every possible movie. That part of the business is still a cash cow for the company, though it is in decline. But streaming customers don’t watch that many movies -- 80% of the time they opt for TV shows, according to a survey of a week of viewing habits of 500 streaming customers done by research firm Gfk.

Among movies, the most-watched titles were recent releases like the Hunger Games, Mission Impossible: Ghost Protocol and The Awakening, Gfk found. That may be why Netflix let go of old movie deals from intermediaries Epix, in May, and Starz, last year.

Executives have been telling investors that the company is modeling itself as the HBO for the Internet. “The goal is to become HBO faster than HBO can become us," chief content officer Ted Sarandos told GQ in February.

HBO attracts millions of monthly subscribers with a mix of hot original shows and a smattering of old movies and new releases about six months out of theaters. No one expects HBO to carry every movie ever released. That may have been a goal of the old Netflix, but no more.

“What you hear people saying is that there aren’t enough current movies,” says David Tice, who follows the media and entertainment industries for Gfk.

Value of content

In its recent deal with Disney (DIS), Netflix will get access to new releases starting in 2016, after Disney's current deal with Starz expires. Movies will be available first on Netflix, not cable, the kind of exclusive the company is seeking under its new strategy.

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