Netflix’s results in the first quarter sent investors a clear message: the pandemic streaming boom is over.
“We have had these 10 years where we grow as well as silk, and [it’s] just a little wobbly right now, ” founder Reed Hastings told analysts after the company reported significantly slower listings in the first three months of the year. Worse yet, Netflix warned that in the United States, its largest market, subscribers would be “roughly stable” until the first half of 2021.
Part of the reason for this is the unique circumstances of the pandemic, with home viewers giving Netflix its best year ever in 2020, sealing its lead over fierce competition from Disney, Amazon, Apple and other big companies vying for a share of the streaming economy.
Worldwide, the market for subscription streaming services is still growing; there are now over half a billion subscribers for Amazon, Netflix, and Disney alone. The proliferation of rival services has led some observers to question their long-term strength.
In more mature markets such as the United States, Netflix faces stiffer competition for time and money, whether it’s go out, or other viewing options such as YouTube and ad-supported free streamers such as NBC’s Peacock.
According to TVision, the US-based audience measurement company, time spent watching TV has increased steadily since October overall, after declining from its April high. Yet Netflix’s viewing share has fallen. He found that the streaming service’s share fell 5 percentage points to 23% over the past two quarters, while smaller competitors made minor gains. However, it remains comfortably number one.
While this pandemic impact has skewed the growth of Netflix and other streaming services, a more worrying conundrum has also surfaced in the company’s quarterly results. Netflix executives said a lower content list, with delayed programming due to Covid delays, resulted in fewer subscribers.
“A lot of the projects that we were hoping to get out sooner were pushed because of production delays,” said Ted Sarandos, co-managing director, who promised investors the company would return to a “more stable state” at the time. second semester. of the year with the return of successes such as The witcher.
Netflix now has 208 million paying customers and has gone from disruptor to incumbent in a new entertainment business defined by streaming. Its valuation soared to $ 225 billion.
But even on such a scale, recent earnings results suggest that Netflix must continue to spend heavily on programming to increase its subscriber base, which raises fundamental questions about whether streaming is a good business, with profit margins that will gradually improve as the pioneers of subscription streaming wane. on investment and raise prices.
“Even for Netflix, it turns out that new original content is a huge driver. . . subscriber additions, ”said Michael Nathanson, senior media analyst at MoffettNathanson.
“This simple observation is at the heart of our streaming debate and whether or not current valuations are consistent with the long-term dynamics of the business model,” he added.
Media groups spend tens of billions a year on TV shows and movies as they battle for a share of the streaming market. Netflix said it was on track to spend more than $ 17 billion on content this year, while Amazon, Disney and Warner Media, the owner of HBO Max, increased their investments in original shows to supplement their archives.
However, not all expense translates into popularity or success. Hits, whether expensive or cheap to make, are the great underlying force in the subscription streaming economy. And as Hollywood knows, they’re extremely difficult to predict.
Here, the approaches taken by different streaming services are markedly different. HBO has one of the smallest libraries in the streaming battle – Amazon’s catalog of primarily licensed movies and programs is 13 times the size.
However, HBO excels at producing critically-acclaimed shows, as measured by a review-weighted website rating calculated by Ampere Analysis. Netflix and Amazon libraries offer more quantity than consistent quality.
“We believe Netflix’s core product proposition is ‘something new and different every day,’ as opposed to ‘the specific hit show XYZ,'” said Todd Juenger, analyst at Bernstein. But he added that subscriber growth could undoubtedly be “boosted”. “The more we believe it to be true, the more optimistic we are about [the second half of 2021],” he said.
Additional reporting by Chris Campbell and Patrick Mathurin