London, Europe Brief News – Streaming as a technology has a future. But whether it can be profitable in its current model is another question. The costs of the streaming war are almost infinite; unfortunately, the revenues are not.
If the market leader bleeds, what does that say about the market? Everyone looked in amazement at Netflix’s beating on the stock market.
In three months, the stock has already lost 40 per cent. However, Reed Hastings’ company seemed to have the wind in its sails. With about 222 million subscribers and more than 30 billion dollars (26.6 billion euros) in revenue, Hastings did what he promised: make Netflix grow like a weed.
At the time of the IPO in 2002, turnover was 30 million dollars. Since then, the share price has risen by a staggering 47,000 per cent.
With the Korean series Squid Game and the science drama Don’t Look Up, starring Leonardo DiCaprio and Jennifer Lawrence, the company boasted – not unjustly – that it had one of its strongest seasons yet.
But it turned out not to be enough to record another significant growth in the number of subscribers. Netflix lost its status as a growth company in one fell swoop. With ‘only’ 8.3 million new viewers in the fourth quarter of 2021, the video streaming pioneer recorded the smallest growth since 2017. And the expectations for the start quarter of this year with just 2.5 million subscribers are also not such that spontaneous applause breaks out. The result can be seen in the share price: -23 per cent.
But it wasn’t just Netflix that suffered. Other platforms were also hit. Roku fell 9 per cent, while Disney, not in top shape in recent months, slipped another 7 per cent. Discovery lost nearly 5 per cent. A sign on the wall?
Netflix is a pioneer and market leader in an environment that has benefited from solid tailwinds in recent years. Netflix and competitors such as Disney+ or HBO Max saw subscribers flocking. “During the lockdowns, streaming platforms have proliferated,” says Tom Evens, media specialist at Ghent University. “People were at home, had much time to spend, and there were hardly any alternatives.”
The question arises of how high the trees can grow. It is now clear that Netflix’s growth is beginning to cap, perhaps partly due to the rise of that competition. “Of course, this will increasingly push the streaming market to a saturation point,” says Evens. “Families will also not subscribe to four or five services. That takes a serious bite out of the budget to be spent, and above all: it takes a lot of time to view everything.”
According to consultant Deloitte, at least 150 million paid subscriptions to streaming services will be cancelled worldwide this year. And this is against a background of platforms expanding worldwide while national media companies are fully setting up their own ‘domestic’ streaming service, such as Streamz with us.
“Increased competition is providing consumers with an abundance of choice, and as a result, customer churn is increasing,” said Deloitte’s Technology, Media & Telecommunication Predictions.
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The more profound question then is what this means for current business models? What happens when popular new content is no longer enough to attract many new subscribers? “That means continuing to invest in a market that will no longer grow in the long term. But meanwhile, we are faced with rising costs,” says Evens.
Netflix is expected to spend $18 billion on content this year, investment bank Morgan Stanley estimates, as it tries to keep ahead of competitors Disney+, HBO Max, Apple TV+, Amazon Prime and a host of others. According to the Financial Times, platforms will spend $140 billion on new films and series this year alone. That’s a lot of ammunition in what analysts call a full-blown streaming war. It’s those high costs that scare investors and dump growth stocks like Netflix. The realization is dawning that the era of unbridled growth has ended.
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“Streaming as technology is part of the future. Whether it can be profitable as a business model remains to be seen,” says Tom Evens. Analyst Michael Nathanson is sceptical, calling this evolution a “worrying fact” for the streaming industry on Bloomberg. “Streaming companies are on their own. They have to give their customers a new reason to pay every month, and that is both difficult and expensive.”
Viewers binge n top series incredibly fast, which should lead to an increasing input of new content. In addition, the shelf life of the supply – the expiration rate in the jargon – also seems to be getting shorter and shorter. These rising costs and increasing mutual competition are unsustainable.
Price increases – as Netflix has implemented – are unpopular and detrimental to market share in a competition. Consultant Deloitte thinks the future lies in cheaper formulas or that platforms should offer free ad-support packages. However, for analyst Laura Martin, the near future looks quite dystopian: “The streaming market will only become more stable after several bankruptcies”, which she says will happen within three years or even earlier.
