Reed Hastings, co-CEO of Netflix, participates in the Milken Institute Global Conference on October 18, 2021 in Beverly Hills, California.
Patrick T. Fallon | AFP | beautiful pictures
Surely we are living in the opposite direction of tears. The old vehicle has been discontinued Netflix.
Netflix announced on Tuesday they are exploring adding a lower priced, ad-based tier to their service. This decision puts the world’s largest video streaming service in a unique position: following the lead of the old media.
Comcast and Disney-owned Hulu is the founding father of ad-supported streaming. In recent years, Discovery of Warner Bros.The main streaming services of (HBO Max and Discovery+), NBCUniversal’s Peacock and Paramount Globalof Paramount+ are all launched in ad-based tiers at a lower price than their non-commercial products. Disney said last month Disney + will provide an ad-supported product.
The legacy media industry has spent the past 4 years overhauling their businesses to compete with Netflix. All legacy media have decided Netflix’s streaming-only model is the future of entertainment consumption. Companies saw Netflix trading at sky-high levels, leading to a spike in stock prices, no matter how much they spent on content.
The result is a package major companies shift focus to direct competition with Netflix rather than protect the pay-TV package, long the crown jewel of the industry.
In the streaming world, Netflix seems like the incumbent – grappling with saturation and an aging core service. That may not be good news for entertainment companies struggling to gain market share.
The optimistic goal of legacy media companies is to achieve the same kind of transaction multiples as Netflix – a “win-win” scenario. But, at least for now, it looks like entertainment rivals have pulled Netflix down, which admittedly in the past first quarter earnings update Increasing competition has led to its slowing growth rate.
Netflix shares fell more than 35% in Wednesday morning trading, dragging its market capitalization below $100 billion for the first time since 2018.
When a subscription-based company, like Netflix, is inevitable, the music will eventually stop. No company can sustain subscriber growth forever. The storm begins.
That seems to have happened with Netflix, which lost subscribers for more than 10 years in the first quarter and expects to lose another 2 million subscribers in the second quarter.
On the surface, the situation was so dire that Netflix CFO Spencer Neumann jumped in shortly before the end of the company’s earnings conference call on Tuesday to reassure investors that Netflix would still grow. in terms of subscribers for the whole year. – a consolation when you consider that most analysts expect Netflix to add almost 20 million net subscribers by 2022.
“There will be net plus growth paid off,” says Neumann. “I just wanted to make sure that was understood.”
What now?
Netflix shrinking isn’t good for Hollywood, which benefits not only from streamers’ willingness to spend, but also the ensuing arms race from competitors.
A version of Netflix that needs to cut spending because it no longer has an inflated market value that forces the entire industry to figure out what’s next. If Netflix is accepting ads after years of fighting them, will the company be encroaching on the next live sports?
Co-CEO Ted Sarandos said he doesn’t see a path in the sport’s favor on Tuesday’s conference call, but Netflix appears to be in the habit of changing long-held beliefs. Netflix omitted password sharing for years – and that is also changing.
If Netflix looks and works like all other entertainment companies, it will also be disrupted. The dubious video game, which the company has repeatedly touted as an area for innovation, will be enough to separate Netflix from the pack.
The industry looks a lot more volatile now than it did a year ago, when “trading like Netflix” was really a goal. There is rampant speculation online wars will lead to more fusionbut it is not clear whether regulators will allow such transactions to take place.
Media companies may have rallied around protecting pay-TV packages, but they’ve risked ceding the future to Netflix and other tech giants. Whether that decision was correct or not, the ship was already at sea.
And Netflix’s push into streaming hasn’t resulted in the multiple expansions that the legacy companies had hoped for. As Netflix declines, so do its newly identified peers. Paramount Global fell more than 7% on Wednesday. Discovery by Warner Bros. down more than 5%. Disney dropped 4.5%.
Old media may have downplayed Netflix to some extent. But in doing so, it created an existential crisis for the entire entertainment industry. What do we do now?
WATCH: Netflix hasn’t earned 500 million viewers yet, says Jim Cramer
Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC.
