For the past decade, Netflix offered the same response every time it had a bad quarter: This is just a blip.
In 2015, it blamed a transition to chip-based credit cards. In 2016, it was media coverage of a price increase. In 2018, it was poor forecasting. All of these shortfalls were temporary annoyances, it said, and none would stop its steady march towards global supremacy.
Wall Street has given Netflix a lot of leeway over the years because the company has proven again and again that it knows what it’s doing. Those slowdowns were mere blips, as Netflix promised. But investors’ faith is about to be put to the test. Netflix is on pace for its slowest year since 2013, the same year “House of Cards” debuted and changed the trajectory of the company. Netflix was only available in a few dozen countries at the time.
The company has blamed its recent results on accelerated growth from a year ago. People all over the world signed up for Netflix in record numbers during the pandemic because they had nothing better to do than binge “Tiger King.” Now people would rather attend sporting events and eat out. By next year, however, Netflix will resume its pattern of adding between 25 million and 30 million customers a year.
Yet there’s a growing body of evidence that it won’t be as easy to just snap back. Netflix’s growth didn’t just slow in the most recent quarter. The company lost 400,000 customers in the U.S. and Canada.
Netflix shrank at the same time that HBO Max and Disney+ grew. When asked about the threat of competition in the past, Netflix chief Reed Hastings has noted that the streaming service grew even as Disney+ was putting up record numbers. A rising internet tide lifted all streaming boats. But Netflix hasn’t grown in its largest and most competitive market over the last six months.
This is not to say that Netflix is doomed now that it faces stiffer competition. Anyone who reads this newsletter knows that predicting Netflix’s demise has been a fool’s errand for the past decade. Projections of Netflix stalling at home have always been premature. The challenge for Netflix isn’t whether it can keep growing — it can and will — but whether it can keep growing at the blistering pace it has established.
Netflix has a massive head start on its competition overseas, and it generates more revenue than HBO Max and Disney+ combined. The market for streaming TV will continue to grow, and Netflix will be a beneficiary. But it won’t be the only one. It might not be the main one.
For most of Netflix’s existence, it benefited more than any other TV network as viewers transitioned from cable to the internet. When customers are thinking about what to watch, their options used to be cable or Netflix. Viewers can now choose between Netflix and HBO Max and Disney+ and Apple TV+ and Peacock.
Netflix ‘s share of audience demand for new online shows in the U.S. has fallen from 71% at the end of 2017 to 46%, according to Parrot Analytics.
“It should be clear by now that the U.S. streaming market has become much more competitive over the past few years as new entrants and established players have prioritized streaming content while cutting subscription prices to attract new users,” analyst Michael Nathanson wrote in a recent note to investors.
Sustaining growth, especially in more mature markets like the U.S. and Canada, will require the consistent output of great shows. Netflix had its worst quarter yet for original series, according to the Entertainment Strategy Guy.
New episodes of hit shows “Lupin” and “Too Hot Too Handle” lost more than 20% of their audience from previous installments. The biggest movies of the second quarter were watched by fewer people than a year ago, even though Netflix now has more customers.
Netflix’s strongest case for sustaining its recent trajectory is that the world is a very big place. While it has signed up about half of potential customers at home, it’s still a small player in many markets in Asia, Africa and Eastern Europe. The Asia Pacific region, Netflix’s smallest region, has contributed the most new customers this year.
Whether or not you remain optimistic about Netflix’s future boils down to one question:
Do you think a majority of people with internet access will get a Netflix account? Or do you think only some of the people with internet access will get a Netflix account?
Netflix has signed up 209 million of what it says are the 800 million to 900 million households that have either broadband internet or pay-TV. The company believes it will sign up more than half of those people. Not only will it continue to grow in places like Asia Pacific and Latin America, but it will keep growing in the U.S., Canada and Western Europe.
The company has earned the benefit of the doubt, but the margin for error is shrinking. – Lucas Shaw
The best of Screentime (and other stuff)
HBO Max is the fastest-growing streaming service
Jason Kilar has earned a victory lap.
The WarnerMedia chief executive was tarred and feathered by Hollywood agents and A-list directors for his decision to drop movies on HBO Max the same day in theaters. For months, unhappy executives at Warner Bros. gabbed anonymously about how much money the studio was throwing away. Kilar’s critics smiled with glee when his boss, John Stankey, decided to sell WarnerMedia, a deal that seemed to spell his inevitable departure.
And yet, Kilar may get the last laugh after all. HBO Max added 2.8 million customers in the most recent quarter, boosting its total to 47 million in the U.S. and 67.5 million worldwide. AT&T now expects the service to eclipse 70 million by the end of the year. I spoke with Kilar this week about the success of HBO Max and his future.
To what do you attribute the strong growth in the quarter? Were any specific movies or tv shows big drivers?
There’s a number of things that go into it, but from a titles perspective… On the series side, there’s ‘Mare of Eastown,’ ‘Hacks,’ the ‘Friends’ reunion. On the motion picture side, I’d highlight ‘Godzilla v. Kong.’ ‘Mortal Kombat’ as well.
To your larger question, I’d say it’s really now the third quarter in a row of I think us doing the job we’re capable of. To make sure we’re presenting an incredible slate of new productions
Do you plan to release any data on the performance of specific movies on HBO Max, a la Disney?
We don’t have immediate plans to share stats.
You announced plans for 10 day-and-date movies next year. How do you distinguish what movies are for HBO Max and what are for theaters? Are there specifics genres that work better in one place vs the others?
There is a certain kind of movie or story or character that is very well set up with a shortened exclusive theatrical run. That’s the 45-day run. In the case of ‘Batman,’ which we’ll release in March, that’s the kind of story where we’re introducing a new actor in the role and we think having a global exclusive theatrical run will do a good job setting it up in the mind of the consumer. It will go to HBO Max immediately after.
Do you feel vindicated at all by the performance of HBO Max so far after the sturm and drang over the movie decision?
In my career I’ve never tried to have highs and lows based on outside chatter. It makes life a bit tougher than it otherwise should be. What has felt good is the consumer response to a decision that was a first for the industry. We felt very strongly it was the right decision to make. It’s fulfilling to note the consumers agree.
It’s also fair to say we’ve done more for the motion picture exhibition industry than any other studio over the past year. We’ve provided a number of big budget pictures.
Did your strong growth impact Netflix’s growth?
I just don’t know. What I can tell you is that what we’re doing is clearly resonating with a lot of consumers in the US market. Not just in absolute subscribers but revenue.
A year ago the HBO and HBO Max business was a $6 billion business that was declining 5% year over year. 12 months later, it’s an $8 billion business growing remarkably fast – 39%.
So there will be no tweeting with Reed Hastings about getting HBO Max on the leaderboard?
I don’t think Reed will be tweeting me about Q2 sub numbers.
With the success of HBO Max so far, why create CNN plus? Why not offer news in HBO Max?
What we’ve been inventing wouldn’t work inside HBO Max. You’ll know this when you see it in Q1. If CNN linear is a beloved yellow taxi cab, CNN Plus is Uber. Both get you from point A to point B, but what they do it is fundamentally different. Nothing would stop us from having a bundle. But the user interface, the user experience is going to have a number of things very unique to CNN Plus that wouldn’t naturally fit inside the HBO Max user interface.
Have you talked to David Zaslav about your future at the company? Are you open to staying after the deal closes?
I haven’t thought much about it. I’m focused on leading WarnerMedia. That is the role I’m happily in. It’s a mission I deeply believe in, I adore this mission and this team.
The best thing and the right thing is for me to keep my head down.
The Olympics are really happening
It’s hard to think of a worse event to host during the pandemic than the Olympics. You fly thousands of athletes from hundreds of countries to one place, where they typically stay in villages with one another. In a normal year, there would be hundreds of thousands of spectators as well.
And yet… here we are! The opening ceremony took place Friday night, and the ratings were not good. The number of cases linked to the events is already in the dozens.
In related news...
- Gap hopes the games will provide a big boost to its fledgling sportswear line. Gymnast Simone Biles and track star Allyson Felix have both signed endorsement deals with the company.
- Comcast is relying on the games to provide a big boost to its streaming service Peacock.
People aren’t going to the movies
The top movie this weekend, M. Night Shyamalan’s “Old,” grossed about $16 million. The “Space Jam” sequel and “Snake Eyes,” a G.I. Joe spin-off, came in a shade behind.
The popularity of “Black Widow” on its opening weekend induced a sense of optimism about the return of movie theaters that looks unwarranted. It was the only weekend all year that came close to matching ticket sales in 2019. So far this year, box office sales are down about 77%.
More numbers…
- The most popular show on TV last week was… the NBA finals. Ratings grew 32% from a year ago. But they were down 34% from 2019.
- The most popular song in the world last week was… BTS’ “Permission to Dance.” It was streamed 187 million times on YouTube, and 3.6 million times on Spotify.
Deals, deals, deals
- Apple wants studio space. The tech giant has talked about leasing a much larger production facility or campus in LA.
- The deal merry go round continues. Comcast and ViacomCBS have discussed joining forces on streaming operations outside the U.S.
- SPAC attack. Former CBS executives Joe Ianniello, Dana McClintock and Marc Debevoise have joined forces to create a SPAC.
Weekly playlist
I mean… “Ted Lasso.”
Also, I made a four and a half hour playlist of some songs that are summer bops. I realize we are creeping back towards hibernation, but sharing for those of you that still want good vibes.
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July 26, 2021 at 05:00AM
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Netflix Enters Middle Age. Brace for Speed Bumps. - Bloomberg
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