Are you still watching? Netflix falls down

0

Initially, Netflix offered subscribers access to pre-existing licensed movies and TV shows from other creators. But in 2012, the same year it launched in the UK, it began developing its own content, scoring its first hit with the Washington political drama. Card castle. Netflix has disrupted the traditional TV model by airing all of its episodes at once, rather than week after week, so viewers can watch entire series in one sitting.

The platform has proven to be a resounding success. In the 10 years since, it has reached nearly 222 million subscribers in 190 countries, up more than 750%, and it became profitable for the first time late last year.

Netflix’s rise was aided by a long period of accommodative monetary policy and a historic bull market, allowing the company to spend big as long as investors believed in the strategy. In a low interest rate environment, yield-seeking investors happily bought Netflix bonds, funding the company’s frantic spending on content.

From 2018 to 2021, Netflix invested $55 billion in TV shows and movies as it raced to compete with major networks and Hollywood studios. Netflix’s push sparked an industry-wide land grab in which every company had to spend big to win. In 2019, Amazon spent $1 billion on just one TV show – an adaptation of the the Lord of the Rings said to be the most expensive show in history.

“One of the reasons [everyone] so invested [from 2017- 2019] was the theory that for the next two or three years it was all about acquiring subscribers,” says the former head of a major streaming service. “That window of time was when people were going to make the switch. You had to get them. Netflix knew it.

But the content arms race has only skyrocketed as new players with deep pockets entered the market and those stuck at home during the coronavirus pandemic boosted viewership. American media groups are expected to spend more than $100 billion on content this year. Netflix alone accounts for $17 billion of that.

These sums are “historic” [and] setting a precedent,” says Tom Nunan, a professor at UCLA’s School of Theater, Film and Television and executive producer of the Oscar-winning film. Accident. “These are the types of numbers most associated with the Ministry of Defence. From unique companies like these, it’s almost unimaginable – but the numbers are certainly unsustainable. »

Investors switch channels

Until recently, Wall Street applauded lavish spending on streaming. After Disney unveiled a slate of Disney Plus programs based on Marvel and Star Wars properties in December 2020, for example, its stock briefly hit an all-time high.

But the sentiment has now changed. A canary moment in the coalmine for the streaming industry came in February, when Paramount executives announced big investments in their Paramount Plus streaming service and saw their share price plummet nearly 20%. the next day.

Wall Street was unconvinced then that a switch to streaming would improve Paramount’s results. But Netflix’s announcement this month seemed to confirm something to investors: no matter how good the programming, the streaming industry is unlikely to ever generate the kinds of profits that television groups and movies have made in the pre-streaming era.

“It’s absolutely a lesser business model [than cable television]“Explains the former boss of a large streaming service. “The price at which you must arrive to duplicate the [cable] the market is astronomical.

Netflix announced a number of measures this week to try to weather the downturn in subscriber numbers. During last Tuesday’s video call with investors, Spencer Neumann, Netflix’s chief financial officer, said the company will “trim some of our expense growth,” though company officials say it will continue. to spend more than its rivals in the industry to make new films and series.

The company will also lift its longstanding opposition to advertising on the Netflix platform, with Netflix co-founder Reed Hastings suggesting that a cheaper, ad-supported service could be available within a year or two.

“I’ve been against the complexity of advertising and a big fan of subscription simplicity,” Hastings said last Tuesday. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice.”

But the biggest improvement Netflix needed to make, Hastings said, was to improve the quality of its programming — the side of the business overseen by co-CEO Ted Sarandos.

Analysts agree. “Netflix should create a lot more must-watch TV series and movies that become ongoing franchises,” LightShed analyst Rich Greenfield wrote in a research note. “Netflix’s content, especially its English content, just doesn’t resonate with the level of spending.”

This is where Netflix faces the fiercest competition from its rival streaming services run by long-established content creators HBO, Disney, NBCUniversal and Paramount – not to mention wealthy Amazon and Apple, who won’t have probably don’t need to rein in their spending anytime soon.

Sarandos, which has worked hard to weave Netflix into the Hollywood fabric, sounded defensive this week about the need to improve its programming. He said Netflix movies such as Don’t look up, red notice and Project Adam are among “the most popular and most-watched movies in the world” (although, as the company doesn’t release viewing figures, investors will have to take their word for it).

He reminded investors that the company is still the newcomer in terms of content creation. “We’ve been doing this for a decade,” he said. “That’s about 90 years less than all of our competitors have spent there.”

But Wall Street may have lost patience. Already, some analysts are urging the company’s rivals to rethink their spending on streaming. Noting that Sony made money selling its movies and TV shows to streaming companies — the so-called “arms dealer” strategy — Greenfield suggested that some of the traditional studios might consider giving up streaming and instead becoming content providers.

“While it’s hard to imagine abandoning streaming ambitions with so much capital committed to original streaming programming over the next few years, we wonder if this is the tough decision that management teams such as NBCUniversal and Paramount should take?” wrote Greenfield.

— FinancialTimes

Share.

About Author

Comments are closed.