Shine comes out of the dream of streaming as Netflix subscriptions shrink

Netflix results on first quarter sent investors a clear message: the pandemic transmission boom is over.

“We had these ten years in which we grew soft as silk, and [it’s] a little hesitant right now ” founder Reed Hastings he told analysts after the company reported sharply slower records in the first three months of the year. Worse, Netflix warned that in the U.S., its largest market, subscribers would be “roughly flat” during the first half of 2021.

Part of this is explained by the unique circumstances of the pandemic, where home viewers give their importance to Netflix best year of 2020, sealing its edge over fierce competition from Disney, Amazon, Apple and other big companies competing for a slice of the streaming economy.

All over the world, the market for subscription transmission services continues to grow; there are now over half a million 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 like the United States, Netflix faces fiercer competition for time and money, either going out, or other viewing options, such as YouTube and free ad-funded broadcasts, such as NBC’s Peacock.

According to TVision, the U.S.-based audience measurement company, time spent watching television has steadily increased since October in general, as it has declined from its peak in April. However, Netflix’s viewing share has dropped. It was found that the share of the transmission service has decreased 5 percentage points to 23% in the last two quarters, while the smaller rivals have made lower gains. Still, he remains comfortably number one.

While this pandemic impact has distorted the growth of Netflix and other streaming services, a more troubling enigma also emerged in the company’s quarterly results. Netflix executives said a weaker content list, with some delayed programming due to Covid delays, had translated into fewer subscribers.

“Many of the projects we had hoped to release earlier were driven due to delays in production,” said Ted Sarandos, co-executive, who promised investors that the company would return to a “more stable state” in the second half. of the year with the return of hits like The Wizard.

Now Netflix has 208 million paying customers and has gone from interruption to headline in a new streaming-defined entertainment business. Its valuation has risen to $ 225 billion.

But even on such a large scale, recent earnings results suggest that Netflix should continue to spend on programming in order to limit subscriber count, raising fundamental questions about whether streaming is a good deal, with profit margins. which will constantly improve as the pioneers of subscription transmission relax. on investing and raising prices.

“Even for Netflix, it turns out that new, fresh original content is a critical factor to drive. . . subscriber additions, ”said Michael Nathanson, senior media analyst at Moffett Nathanson.

“This simple observation goes to the heart of our debate about transmission and whether or not current valuations are consistent with the long-term dynamics of the business model,” he added.

Media groups are splashing tens of billions a year on TV shows and movies while fighting for a share of the streaming market. Netflix said this year it was on track to spend more than $ 17 billion on content, while Amazon, Disney and Warner Media, which owns HBO Max, are investing in original programs to complement their files.

However, not all spending translates into popularity or success. Hits, whether expensive or cheap, are the great underlying force driving the economy of subscription transmission. And, as Hollywood knows, they are extremely difficult to predict.

Here the approaches adopted by the different transmission services are very different. HBO has one of the smallest libraries in the streaming battle: Amazon’s catalog of main-licensed movies and shows is 13 times larger.

However, HBO is excellent at producing critically acclaimed programs, as measured by a weighted review website score calculated by Ampere Analysis. Netflix and Amazon libraries offer more quantity than constant quality.

“We believe that Netflix’s core product proposition is‘ something new and different every day, ’as opposed to the‘ specific success program XYZ, ’” said Bernstein analyst Todd Juenger. But he added that there is no doubt that subscriber growth could be “boosted”. “The more it is believed that, to be sure, the more optimistic it would be [the second half of 2021], “He said.

Additional reports by Chris Campbell and Patrick Mathurin