JTwelve years ago, Jeff Bewkes, then CEO of Time Warner, compared Netflix to the Albanian army. “Is it a bit like the Albanian army is going to conquer the world? I don’t think so,” Bewkes told The New York Times, disparaging the streaming service’s ability to take on established media players.
Well, the Albanian army won. Time Warner followed Netflix in streaming, NBCUniversal and Disney followed and so on. In Britain, the BBC and ITV have invested in their streaming portals. The media now lived in the world of Netflix.
In the years since, blow after blow – from Stranger Things to Bridgerton – has cemented Netflix’s position as the world’s premier streaming service. Subscribers exploded as the coronavirus made much of the global shutdowns. And then in January, the boom seemed to be over.
Globally, Netflix announced that it expects to add just 2.5 million new subscribers in the first three months of the year, well below the 4 million in the first quarter of 2021. The news helped to erase nearly $45bn (£33bn) from its value as investors feared Netflix’s glory days were over.
On Tuesday, Netflix publishes its latest quarterly results. And some analysts fear that increased competition from Apple, Amazon, Disney and mainstream media means the Albanian military is finally on the run.
The narrative was further cemented last month when Coda beat out Jane Campion’s Power of the Dog for the Best Picture of the Year Oscar. The heartwarming story of a child of deaf adults was produced by Apple, Campion’s critically acclaimed neo-western was produced by Netflix. It was the first time that a film released by a streaming service won the best Oscar.
After redefining the media landscape, Netflix was in trouble and now – for some – it’s time for Netflix to change the game.
For Needham & Co analyst Laura Martin, what was once Netflix’s greatest strength has become its greatest weakness.
In the previous quarter, Netflix released the biggest TV show of the year, Squid Game, and its two biggest movie releases, Red Notice and Don’t Look Up. The company spent $17bn (£13bn) on content in 2021 and is expected to spend around $19bn in 2022.
But that hasn’t been enough to sustain the kind of growth Wall Street has grown accustomed to. “Originals and entertainment content are no longer enough,” Martin said. “Our thesis is that you have to have news and sport. You have to have breaking news because it attracts people when, for example, Russia invades Ukraine or sports because when there is a really good game, people flock to you and stay there.
Entertainment alone, she argues, is simply too narrow, and the company’s success may have blinded them to the need to offer a greater variety of content.
When Netflix started, its main rivals in the United States, its biggest market, were cable companies that offered sports and news as well as entertainment, but at a much higher price. “In the beginning, when it was $15 a month and they had great library content from all the major studios, it was a really good deal,” she said. “Now that all the big boys are in the business, they all have much bigger libraries than Netflix and they have news and sports. The competitive landscape has changed for Netflix and they’re not changing.”
But while Netflix may not be growing as fast as before, it’s way too early to call it off. Even another disappointing quarter — and another drop in share price — shouldn’t detract from the streaming company’s enormous power in a media world that continues to catch up.
Globally, Netflix had 222 million subscribers at the end of last year. People spent 1.65 billion hours watching Squid Game in its first four weeks. And it’s still one of the best-performing stocks of the past two decades, gaining more than 34,000% since the company went public in 2002. It made a profit of $5.1 billion in 2021. and its content budget dwarfs most of its mainstream media rivals.
There’s been a “reset,” said Brian Wieser, global president of business intelligence at media agency GroupM. In part, this reset is a “recognition that the economics of the streaming industry are not as good as those of the traditional media industry.”
But this traditional media sector is still struggling and, if you take a step back and look at what Netflix and its peers are doing to the media landscape, he argues, it’s clear that streaming is here to stay and it’s the companies. traditional media who remain the most at risk.
“We’re moving into a much more globalized economy and it’s a much more globalized media industry than it’s ever been,” Wieser said. Successes such as Squid Game in South Korea and All of Us Are Dead show that Netflix remains the leader in this global market. “They’re so much bigger in that space that the growth will naturally be more limited,” he said. “That doesn’t mean the business is weak or the long-term profit profile isn’t strong.”
“Sometimes we lose a sense of perspective on these things,” Wieser said. “When you still have one of the most valuable media companies in the world and you’re still one of the most, if not the most, influential media companies by content spend, the latest results have- Were they really disappointing or was it about expectations being incompatible?”
In the meantime, the streaming world continues to eat away at the traditional ad-supported TV and cable market and that, combined with the global vision that Netflix has brought to media, gives it and its rivals a lot room for growth.
Competitors may have sung Netflix’s New Year’s slump, but the fall hasn’t shaken either the scale of its ambitions or the depths of its pockets.
UK’s ITV recently announced a new streaming platform, ITVX, which it hopes will be a “national champion” in the battle of UK viewers against the streaming giants. The media company’s overall content budget is expected to be £1.23 billion this year. Netflix alone will spend 11 times more.
In the United States, consumers spent an estimated $140 billion on professional video content last year, from cable content and theatrical admissions to streaming services and physical media purchases. Streaming services account for about $30 billion of that money; cable still takes $100 billion but still loses subscribers. From 2016 to 2021, pay TV lost more than 50 million adult viewers in the US and less than half of all US households will have a cable TV subscription by 2023, according to Insider research. Intelligence.
Arguably, even its recent losses show that Netflix is winning. The fact that the best picture battle of this year was a battle between Apple and Netflix shows how firmly streamers are embedded. The days of Netflix being the Albanian army may be over, but the truth is that media companies are now all Albanian.