TTwelve years ago, Jeff Bewkes, then CEO of Time Warner, compared Netflix to the Albanian military. “It’s a bit like the Albanian army taking over 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 invested in their broadcast portals. Media now lived in the world of Netflix.
In the years that followed, hit after hit, from Stranger Things to Bridgerton, cemented Netflix’s position as the world’s leading streaming service. Subscribers surged as the coronavirus brought much of the world into lockdown. And then, in January, the boom seemed to be over.
Globally, Netflix announced that it expected to add just 2.5 million new subscribers in the first three months of the year, down from 4 million in the first quarter of 2021. The news has helped shed nearly $45 billion ( £33bn) of its value as investors worried that Netflix’s glory days were over.
On Tuesday Netflix publishes its latest quarterly results. And some analysts worry that increased competition from Apple, Amazon, Disney and traditional media players means the Albanian military is finally on the run.
The narrative was further bolstered last month when Coda beat out Jane Campion’s Power of the Dog for the Oscar for best picture of the year. The moving story of a son of deaf adults was produced by Apple, Campion’s critically acclaimed neo-Western was produced by Netflix. It was the first time a movie released by a streaming service had won the best Oscar.
Having redefined the media landscape, Netflix was in trouble and now, for some, it’s time for Netflix to change their game.
For Needham & Co analyst Laura Martin, what was once Netflix’s key 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 theatrical releases, Red Notice and Don’t Look Up. The company spent $17bn (£13bn) on content in 2021 and is expected to spend about $19 billion 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,” said Martin. “Our thesis is that you have to have news and sports. You have to have breaking news because that brings people in when, say, Russia invades Ukraine or sports because when there’s a really good game, people come to you and stay there.”
Entertainment alone, he argues, is too limited, and the company’s success may have blinded them to the need to offer a wider variety of content.
When Netflix started, its main rivals in the US, 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 big studios, it was a really good deal,” he said. “Now that all the big guys are in business, they all have much bigger libraries than Netflix and they have news and sports. The competitive landscape has changed for Netflix and they are not changing.
But while Netflix may not be growing as fast as it once was, it’s too early to write it off. Even another disappointing quarter — and another stock price decline — is unlikely to put a dent in the streaming company’s sheer power in a media world still trying 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 remains one of the best-performing stocks of the past two decades, gaining more than 34,000% since the company’s initial public offering in 2002. It made a $5.1 billion profit in 2021 and its content budget dwarfs the company’s. most of its traditional media rivals.
There has been a “reset,” said Brian Wieser, global president of business intelligence at media agency GroupM. In part, that reboot is an “acknowledgment that the economics of the broadcast business are not as good as the traditional media business.”
But that traditional media business is still in trouble, and if you take a step back and look at what Netflix and its peers are doing in the media landscape, he argues, it’s clear that streaming is here to stay and it’s the streaming companies. traditional media. who remain at higher risk.
“We are transitioning to a much more globalized economy and this is a much more globalized media industry than ever before,” Wieser said. Hits like South Korea’s Squid Game and All of Us Are Dead show that Netflix remains the leader in that global market. “They’re so much bigger in this space that growth will naturally be more limited,” he said. “That doesn’t mean the business is weak or the long-term earnings profile isn’t strong.”
“Sometimes we lose our sense of perspective on these things,” Wieser said. “When you still have one of the most valuable media companies in the world and you are still possibly one of the most impactful media companies, if not the most impactful, because of how much you spend on content, were the last results really disappointing or was it of expectations? do not match?
Meanwhile, the world of streaming continues to absorb the traditional ad-supported TV and cable business and that, combined with the global vision Netflix has brought to media, gives it and its rivals plenty of room to grow.
Competitors may have bragged about Netflix’s New Year’s slump, but the slump hasn’t dented the scale of their ambitions or the depth of their pockets.
UK’s ITV recently announced a new streaming platform, ITVX, which it hopes will be a “national champion” in the battle for British viewers against the streaming giants. The media company’s total content budget is expected to be £1.23bn this year. Netflix alone will spend 11 times that.
In the US, consumers spent about $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 keeps losing 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 a study by Insider Intelligence.
Arguably even its recent losses show that Netflix is winning. The fact that this year’s best movie battle was a battle between Apple and Netflix shows how tightly integrated the streamers are. The days when Netflix was the Albanian army may be over, but the truth is that media companies are now all Albanian.