Twelve years ago Jeff Bewkes, then chief executive of Time Warner, compared Netflix to the Albanian army. “It’s a little bit like, is the Albanian army going to take over the world? I don’t think so,” Bewkes told the New York Times, disparaging the streaming service’s ability to take on the established media players.
Well, the Albanian army won. Time Warner followed Netflix into streaming, NBCUniversal and Disney came after and so it carried on. In Britain, BBC and ITV invested in their streaming portals. Media was now living in Netflix’s world.
In the years that followed, hit after hit – from Stranger Things to Bridgerton – cemented Netflix’s position as the world’s leading streaming service. Subscribers boomed as the coronavirus made much of the world shut-ins. And then in January the boom appeared to be over.
Globally Netflix announced it expected to add only 2.5 million new subscribers in the first three months of the year, well down on the 4 million in the first quarter of 2021. The news has helped wipe almost $45bn (£33bn) from its value as investors worried Netflix’s glory days were over.
On Tuesday Netflix releases its latest quarterly results. And some analysts worry that increased competition from Apple, Amazon, Disney and traditional media players means the Albanian army is finally on the run.
The narrative was further reinforced last month when Coda beat Jane Campion’s Power of the Dog for the year’s best picture Oscar. The heartwarming story of a child of deaf adults was produced by Apple, Campion’s critically lauded neo-western was produced by Netflix. It was the first time that a movie released by a streaming service had won the top Oscar.
Having redefined the media landscape Netflix was in trouble and now – for some – it is time for Netflix to change its game.
For Laura Martin, an analyst at Needham & Co, what was once Netflix’s key strength has become its biggest weakness.
In the previous quarter, Netflix released the biggest TV show of the year, Squid Game, and its two biggest film releases ever, Red Notice and Don’t Look Up. The company spent an eye-watering $17bn (£13bn) on content in 2021 and is expected to spend about $19bn in 2022.
But that hasn’t been enough to maintain the kind of growth Wall Street has become accustomed to. “Originals and entertainment content is no longer enough,” said Martin. “Our thesis is that you must have news and sport. You must have breaking news because that brings in people when, say, Russia invades Ukraine or sports because when there is a really good game then people flock to you and stay there.”
Entertainment alone, she argues, is just too narrow and the company’s success may have blinded them to the need to offer a wider variety of content.
When Netflix started, its main rivals in the US, its largest market, were cable companies that offered sports and news as well as entertainment but at a far higher price. “At the beginning when it was $15 a month and they had great library content from all the big studios, that was a really good deal,” she said. “Now that all the big boys are in the business, they all have much bigger libraries than Netflix and they have news and sports. The competitive landscape has changed for Netflix and they aren’t changing.”
But while Netflix may not be growing as fast as it once was, it is far too early to write it off. Even another disappointing quarter – and another share price fall – is unlikely to dent the streaming company’s enormous power in a media world that is still playing catchup.
Globally Netflix had 222 million subscribers at the end of last year. People spent 1.65bn hours viewing Squid Game in its first four weeks. And it’s still one of the best-performing stocks of the past two decades, gaining more than 34,000% since the company’s 2002 initial public offering. It made a profit of $5.1bn in 2021 and its content budget dwarfs most of its traditional media rivals.
There has been a “reset” said Brian Wieser, global president of business intelligence at media agency GroupM. In part that reset is an “acknowledgment that the economics of the streaming business are not as good as the traditional media business”.
But that traditional media business is still in trouble and, if you take a stand back and look at what Netflix and its peers are doing to the media landscape, he argues, it is clear that streaming is here to stay and it’s the traditional media companies who remain most at risk.
“We are transitioning to a much more globalised economy and this is a much more globalised media industry than it has ever been,” said Wieser. Hits such as South Korea’s Squid Game and All of Us Are Dead show that Netflix remains the leader in that global market. “They are just so much bigger in this space that growth is naturally going to be more limited,” he said. “That doesn’t mean the business is weak, or the long-term profit profile isn’t solid.”
“Sometimes we lose a sense of perspective on these things,” said Wieser. “When you still have one of the most valuable media companies on earth and you are still arguably one of, if not the, most impactful media companies because of how much you spend on content, were the last results really disappointing or was it about expectations being mismatched?”
In the meantime the streaming world continues to chew up the business of traditional ad-supported television and cable and that, combined with the global vision Netflix has brought to media, gives it and its rivals plenty of room for growth.
Competitors may have crowed at Netflix’s new year crisis but the fall has dented neither the scale of its ambitions nor the depths of its pockets.
The UK’s ITV recently announced a new streaming platform, ITVX, it hopes will be a “national champion” in the battle for British viewers against the streaming giants. The media company’s overall content budget is expected to be £1.23bn this year . Netflix alone will spend 11 times that.
In the US consumers spent about $140bn on professional video content last year from cable content and theatrical admissions to streaming services and purchases of physical media. Streaming services account for about $30bn of that money; cable still takes $100bn but is still losing subscribers. From 2016 to 2021, pay TV lost more than 50 million adult viewers in the US and fewer than half of all US households will have a cable TV subscription by 2023, according to study by Insider Intelligence.
Arguably even its recent loses show that Netflix is winning. The fact that this year’s best picture battle was a battle between Apple and Netflix shows just how firmly the streamers are embedded. The days when Netflix was the Albanian army may be over but the truth is media companies are all Albanians now.
