Heavy is the head that carries The crown.
Once a rambling upstart in the television industry, Netflix has become the king of streaming with 208 million subscribers – nearly half the world total excluding China.
But the latest round of quarterly results from media companies, which ended Thursday night with figures of Disney, showed that the disruptor is now firmly in the role of outgoing defensive.
Three of the old media groups that Netflix sought to dethrone – Disney, HBO, and ViacomCBS – have all developed their streaming services faster in the first three months of this year, fueling investor fears that Netflix must continue to invest billions in new shows to attract viewers or risk losing momentum.
“Netflix isn’t just in the game, it helped invent it. But thriving is different from walking, so the rest of this year is crucial, ”warned Sophie Lund-Yates, equity analyst at Hargreaves Lansdown. “The performance during the pandemic was impressive, but anyone can make hay while the sun is shining.”
“ No real change that we can detect ”
Netflix added less than 4 million subscribers globally in the first three months of the year, sorely missing its own forecast. Only 450,000 people have registered in the United States and Canada, its largest market.
Netflix co-founder Reed Hastings largely dismissed the threat of rivals after reporting those numbers last month, telling investors, “There is no real change we can detect in the competitive environment.”
But Disney Plus attracted 9 million subscribers in the quarter and ViacomCBS added 6 million, while HBO got nearly 3 million US subscribers to its streaming service Max.
Over the past year and a half, Disney, Apple, WarnerMedia, Comcast, and others have launched new streaming platforms. According to data firm Ampere, there are now over 100 streaming services to choose from, with a dizzying array of niche products like Shudder, which is dedicated to horror, or Horse & Country, which broadcasts horse races.
Netflix share price decline since the start of the year
Unlike cable TV, which often locks customers into paid plans, Netflix subscriptions can be canceled with a few clicks on a keyboard, making it easier for users to switch between services based on what they want. watch.
Netflix shares have lost 10% this year, missing a larger rally in the stock market.
Part of this was due to a pause after a striking rally in its shares in recent years, when the company hit new subscriber highs and investors were prepared to pay increasingly higher prices for some of the. its future growth.
But there are also signals that Netflix, founded in 1997, is moving to a more mature stage.
‘Another phase of growth’
In January, the company said it no longer needed to go into debt to cover the cost of its programming, a milestone after a decade of relying on junk debt to spend more than Hollywood studios. Netflix announced a $ 5 billion share buyback plan last month.
While Netflix operates like an incumbent, raising prices and extorting more money from customers, the century-old Walt Disney company and its peers look like start-ups, prioritizing growth as they lose billions a year. in streaming efforts.
Disney’s direct-to-consumer business unit – which includes Disney Plus, Hulu and ESPN – recorded an operating loss of $ 290 million on revenue of $ 4 billion in the quarter. Disney expects to lose money from its streaming business until fiscal 2023.
“Netflix is at a different growth stage compared to other streamers,” said Paolo Pescatore, analyst at PP Foresight. “It will be many years before many other streaming services turn a profit. All of them are placing huge bets and will be loss leaders for years to come. “
“We spend a lot of money”
The strategy has been good for Disney: Its stock has climbed more than 60% in the past year, with investors focusing on the number of streaming subscribers it has added, rather than the billions of dollars. lost due to the pandemic. The fact that its first-quarter subscriber count was lower than forecast by 5 million caused its shares to drop after hours on Thursday.
There are now more video streaming subscriptions than there are people in America, according to Ampère, with 340 million subscribers for a population of 330 million, raising the question of the number of services for which households will continue to pay.
Executives agree that hits ultimately drive subscription activity. And as Hollywood knows, they’re hard to predict.
Disney CEO Bob Chapek pointed to recent Marvel lineup as the catalyst for its recent subscriber boom. “We are spending a lot of money. . . in order to create content that keeps consumers coming back, ”he said Thursday.
Netflix executives have promised growth will heat up in the second half of 2021, with the return of shows such as The witcher. “There’s a lot of rest on the expanded content schedule planned for later this year,” Lund-Yates told Hargreaves Lansdown. “Or the spotlights will be on [Netflix] for a lot of the wrong reasons. “
Additional reporting by Alex Barker