Hollywood stakeholders and analysts alike have declared Netflix the winner of the streaming wars — but the celebration may be short-lived as streaming enters a new phase.
Netflix has pulled off an about-face since 2022 when it saw a subscription growth hiccup — its first in a decade — that caused its stock price to tumble. The streamer’s massive content library helped it maintain dominance during the twin Hollywood strikes of 2023. Its crackdown on password sharing, ad-supported service rollout, and move into gaming have fueled its growth story. It ended 2023 with nearly 250 million total global subscribers, way ahead of Disney+ with 150 million.
As their traditional TV business continues to decline, rival media companies have been forced to resume licensing content to Netflix, which has only solidified its position as the one-stop shop for viewers.
As good as it sounds for Netflix now, Wall Street isn’t likely to be satisfied with that story for long.
Netflix also will likely face questions about its film strategy with news coming January 22 that longtime movie chief Scott Stuber will leave to start his own company.
“It’s competition,” Forrester analyst Mike Proulx told Business Insider. “Netflix is still a dominant player in the marketplace, but it is not the only streamer in town anymore. If anything, the streaming wars have just begun.”
Ahead of Netflix’s January 23 earnings release, here are the three main areas where analysts are asking questions about how the streaming giant will achieve its next stage of growth.
The battle for advertising
Ads will be the hardest-fought front of the streaming wars for 2024. Netflix has moved fast to build its advertising tier along with other streamers — a bid to drum up new sources of revenue as viewers increasingly get subscriber fatigue. This month, Netflix revealed it surpassed 23 million global monthly active users of the ad tier.
But many advertisers have been lukewarm toward Netflix’s offering, saying it doesn’t have enough scale to rival players like Disney+, with 46 million monthly paid subscribers in the US and Canada. Netflix’s figure is murky, though; it refers to individuals, not subscribers, and is global, while advertisers are mostly interested in reaching people in the US. Advertising analyst Brian Wieser estimated that Netflix’s actual subscribers to the ad tier were closer to 8 million in the US, or 16 million users, assuming two users per household.
Netflix has some momentum on its side. As of January, per Antenna and Macquarie Research, nearly one-third of new Netflix signups have been taking the ad tier, which at $7 per month costs less than half the ad-free version — that adoption figure is up from 11% in the first month of launch.
Analysts can’t say for sure how much more subscriber growth Netflix can add through its cheaper ad tier and password-sharing crackdown, though. Plus, Netflix is about to face big competition for ad dollars from Amazon, which will launch ads on Prime Video starting January 29. Amazon will not only offer much more scale than Netflix to start because it’s turning on ads as the default to 115 million monthly users, but it also has other ad products it can tie in, like NFL’s “Thursday Night Football” and its core commerce ads.
Competition for viewers
Netflix faces competition for users on a number of fronts. Right now it’s got an edge overseas, but greater competitive pressure from Disney and local players in international markets could squeeze its overall growth, as subscription growth is mainly driven by markets outside North America, Evercore wrote in a January 19 note.
Closer to home, Netflix may still be the market leader, but other streamers aren’t standing still. Amazon is moving aggressively to add live sports, an area Netflix has so far mostly shied away from. Moves by Peacock and Paramount+ to add to their sports portfolios and content libraries show there’s still plenty of opportunity for growth left for smaller services — especially with Gen-Z viewers, who are the most likely of all age groups to cancel their streamers, according to Forrester research.
Paramount+ and Peacock showed the biggest monthly usership growth of all the big streamers in 2023, of 8% and 5%, respectively, while more-mature Netflix held flat, the Forrester research showed.
With Stuber’s exit, Netflix will lose the exec who built the streamer into a force for film, with Oscar winners like “Roma” and “Marriage Story.” Stuber is well-liked by many filmmakers, and insiders said he wanted the company to expand its limited theatrical distribution approach, which put him in opposition with co-CEO Ted Sarandos. While Netflix has been cutting back its movie output, films have been among its most-watched titles.
Elsewhere, Netflix has been moving aggressively into gaming as a way to keep people tied to its service, but only a small portion of its users play its games. The company has acknowledged on earnings calls that it’s a long way toward those efforts paying off.
Plus, Netflix isn’t just battling other streamers for viewers. Like all other media companies, it faces stiff competition for young viewers with short-form video platforms like YouTube, TikTok, and Instagram. Gen Z watches movies and TV shows like everyone else, but they aren’t as hot on them as their older counterparts, while user-generated online video is a close second to TV and movies, Forrester’s research showed.
Also, Big Tech’s ability to fund their streaming services indefinitely could keep subscription prices depressed for Netflix, along with everyone else, Bernstein noted.
Booming production costs
Netflix enjoyed a big leg up over the competition during the Hollywood strikes, thanks to its robust domestic and international film and TV library. But now that the strikes are over, some analysts predict Netflix will face a bigger content bill going forward.
Jason Bazinet at Citigroup downgraded Netflix from “buy” to “neutral,” predicting its revenue would slow while production and other content costs would increase due to settlements with creators to resolve 2023’s labor strikes.
Evercore also noted that as Netflix relies on emerging markets for growth, it’ll have to compete with overseas buyers for local content in those regions, which could also drive up its costs.
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