Netflix Finally Facing Competitive Reality

Competition Is (Finally) Hurting Netflix

April 27, 2021

April 27, 2021

Last week, Netflix released its latest subscriber numbers, and they weren't pretty. The company's total number of subscriber growth fell in early 2021, a rare reversal for the world's largest on-demand streaming service. This was enough of a shock to cause the company's stock to tumble 8% almost immediately. This week, we'll unpack what this means for Netflix and why it's not all bad news. 

Streamer's Spotlight: Is Cord-Cutting No Longer About Saving Money?

If you're a Netflix shareholder, last week might have been a bit unnerving. Upon news that the company's subscriber growth fell hard (close to 2017 levels), its stock had a massive single-day decline that indicated a major shareholder decided to execute a large sale. To note, the issue wasn't that Netflix lost customers, so much as its growth slowed. But this was following a large increase in subscribers during the pandemic. All the same, the decline in subscriber growth likely has more to just people going back to work. 

Netflix Is Reaching Market Saturation in Major Markets

Let's start with the obvious. Netflix has been in this game far longer than most of its competitors, giving it time to dominate the market far better than most of its competitors. It's also a huge on-demand streaming innovator, and most of its competitors follow its model for success, instead of the other way around.

The company had over 74 million US subscribers in Q1 2021. That's 35% of the US population. Few subscription-based companies have that kind of market share, especially when there's so much competition on the market. 

That saturation is also why Netflix is doing two things: Increasing prices on US customers, and marketing and spreading more heavily in other markets. The company understands market saturation well enough, and it's funding its international expansion by squeezing money out of its largest markets. 

However...

Lower-Priced Competitors Are Eatings Its Lunch

If the past few years have taught us anything, it's that pretty much everyone thinks they can launch a streaming service. In the short time period, numerous Netflix competitors have hit the market. Disney+, Hulu, Amazon Prime Video, HBO Max, Peacock, Paramount+, and even Apple TV+( to a lesser degree), are chipping away at Netflix's market share. And most are able to hedge existing content that they already own, often by letting their licensing agreements with Netflix expire. 

Such is the case with syndicated hits like

Friends and The Office,

both of which were major revenue drivers for Netflix that left the service in 2020.

 

Disney taking back so much of its Marvel content also didn't help Netflix's buy-in argument. 

To make things worse, these competitors are all charging less than Netflix currently does in its major markets, while offering either more content, or higher-rated content (or both). 

The Rise of the Live TV/On-Demand Hybrid

Netflix's biggest limitation may soon become its lack of live TV. Many emerging services now offer hybrid live TV and on-demand offers. This allows them to deliver sports, news, and entertainment under one roof. Netflix has no such offer for its subscribers. If this trend continues, Netflix's only selling point may be its original content, which is certainly a big selling point. But that original content may not be enough to keep people subscribed, or not enough to keep them subscribed long-term.

Is it any wonder that Netflix is starting to crack down on password sharing? Competition is getting intense, and the company sees the blood on the wall, so to speak. Short of continuing to increase prices, the company is starting to strategize around a future where the subscriber counts in its core markets start to shrink. 

This Week's Streaming Guide

1. 'The Handmaid's Tale' Season 4 Begins

Hulu doesn't have too many top-rated originals, but

The Handmaid's Tale

is definitely one of them. Stream the new season starting this Wednesday, April 28. -

2. Netflix Comedy 'Sexify' Coming this Wednesday

An app developer building a sex app needs to deal with the biggest issue with her project: she's lacking in experience with intimacy. -

3. 'Tom Clancy's Without Remorse' Film Hits Netflix this Friday

While seeking to avenge the death of his pregnant wife, a Navy SEAL uncovers a plot that could spark war between the US and Russia. -

4. Celebrities Bring Their Goods to Antiques Roadshow

Just what uncovered gems do celebs have on them? Find out this Monday, May 3, at 8 PM EST when Antiques Roadshow hands things over to celebrities. 

News and Industry Developments

1. NFL Deals Could Drive More Live TV Cord-Cutting

Subscribers want NFL, and if live TV services can provide them, cord-cutting may accelerate -

2. New Service 'Slash' Making It Easier to Split Subscription Bills

Netflix may not like it, however, since it's built on password sharing. -

3. Disney, Sony Strike Deal that Could Bring Spidey to Disney+

The two companies appear to be cooperating more to ensure Spider-Man content is maintained within the MCU. -

4. The NFL Network Is Officially Coming to Hulu + Live TV

That's a big one for NFL fans, given the current RSN blackouts on live TV streaming services. -

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