Netflix: Still the king?
After staggering growth in the first quarter, let’s look at how the entertainment giant is actually faring.
Think of watching something new or catching up on TV and chances are you think of Netflix. Much as how the letter preceding it has become synonymous with fast food, the iconic N has now come to represent the rising face of entertainment. If its first quarter earnings are anything to go by, Netflix is having a fabulous year, and the only way to go seems up. But is it? And is it still the king of streaming? Let’s have a look.
Here are the facts. Netflix grew by 16 million subscribers in the first few months of 2020 alone and more than doubled its forecasted subscriber numbers. This is no surprise, with the world stuck at home, it’s only natural people would turn to entertainment. The churn is also likely to be less and combined with a strong marketing campaign shows Netflix as one of the frontrunners in the streaming war. It is one of only 30 companies in the S&P500 that posted positive growth in this quarter and has revenue of $5.77 billion in 2020 with a total of 183 million subscribers around the world.
However, the picture has gotten rosier in only the past few months. The subscriber count target in the previous years has not been met continuously, and spending has increased from $308/new subscriber in 2012 to $581/new subscriber trailing twelve months last year. This belief of a temporary apparent growth has also been shared by Netflix itself, in a letter to its shareholders the past month, saying, “Our internal forecast and guidance is for 7.5 million global paid net additions in Q2. Given the uncertainty on home confinement timing, this is mostly guesswork. The actual Q2 numbers could end up well below or well above that, depending on many factors including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown” as well as “Intuitively, the person who didn’t join Netflix during the entire confinement is not likely to join soon after the confinement”.
The cracks in the castle
A few years ago, Netflix would have been considered the clear front horse in the race, but with the arrival of services like Disney+ and Apple TV+, that position seems a bit shaky. One of the primary problems that Netflix faces is the higher price charged as compared to these services, which are controlled by companies that can actually afford to charge less for streaming services. Disney is highly dependent on its theme parks and attractions, and Apple is, well, Apple. With the arrival of HBO Max and NBC’s Peacock in a few months’ time, one of Netflix’s primary draws will also be taken from them: franchises. Netflix spent hundreds of millions of dollars on keeping favorites like ‘The Office’ and ‘Friends’, but even those are being removed to stream on new services. This, however, is only the beginning of some of Netflix’s problems.
Another overlooked problem that Netflix faces is that it has in a way, been too big for itself. There was a time a few years ago when a buyout from a bigger company was a realistic scenario, one that would wipe out their colossal debt (around $14 billion now) and let it grow under the eye of a conglomerate looking to expand. Many predicted that Apple would buy Netflix (not going to happen any time soon), and the possibility of another company looking to help, especially in this time, is rare.
Still standing their ground
However, at its heart, Netflix is a revolutionary company. Surprisingly older than Google (Netflix was founded in 1997), it has moved from a content distributor in its early years to a content creator quite gracefully. They were one of the first companies to get on the streaming train, and introduced the world to binge watching- a drastically different way of watching TV that people are finding difficult to move back from. Netflix regularly adds new features to suit the user experience, such as the addition of an audio description in their shows to help the visually impaired, and recently a Top 10 feature to display the most popular movies and TV shows. They initiated their IPO in May 2002 at $15 per share but saw little change for a number of years. However, a glance at their stock value over the past 5 years shows that their growth has been phenomenal barring a few setbacks.
There is one area that Netflix is banking on to cover the losses, if not make profit, which is one of their biggest advantages as a brand. And that is content, both original and pre-existing. Over 40% of Netflix’s current and upcoming slew of shows is original content, and as of 2019, over 2700 hours of original programming was released. They have come a long way from ‘House of Cards’ in 2013 to 83 original TV shows set to premiere this year. This comes at a hefty price to them also, spending $17 billion this year on original content, up from last year’s $15 billion to bring onboard the best of today’s artists.
This plan seems to be working out well, with critics giving overall positive reviews and faring well at awards shows usually dominated by TV networks and movie studios (over 50 Academy Award and over 200 Emmy nominations). Even in times of delayed production like these, Netflix seems to be able to stay ahead, with enough content to last for the next few months.
Netflix also has perhaps the biggest volume of titles across its catalogue, with over 4000 movies and 47000 episodes, which is higher than any other streaming service. Partnerships with bigger studios are also being reached, with Netflix partnering with Viacom18 and Dharma Productions in India to produce shows in local languages.
The path ahead
The question remains however as to whether this sudden surge of growth seen since the beginning of this year is a little fuel in their engine or the actual beginning of a profit making time. There are a number of ways Netflix can boost their growth. Although the children and teenagers user market seems like it is currently held by the 50 million subscribers strong Disney+ (having names like Marvel and Star Wars to their catalogue), if Netflix moved to create more family-centric content it could bring more subscribers. Also seeing that a majority of its new subscribers come from countries outside the US, a larger focus on regional content can also work in places adapting Netflix quickly. Changes in the pricing model like the first month 5 Rs plan on mobile devices or a referral policy can go a long way in expansion.
Netflix has come a long way, becoming a company that has reached the status of having its name used as a verb (‘Netflix and chill’)and though the future(theirs and the world’s) seems unclear, investors can only hope that the subscriber count increases and quality content continues to make its way to its dedicated viewers.
Here are some links you can refer to:
