A tale of two broadcasters - why Netflix's post-COVID slump is the talk of The Ton

Profile picture for user slauchlan By Stuart Lauchlan April 21, 2021
Summary:
Disruptor disrupted? Netflix's pandemic boost looks to be over - is it competition that's closing in that's causing the slowdown?

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It’s interesting to note that while the COVID crisis and the enforced lockdowns around the world appears to have inspired the likes of the UK’s Channel 4 to rise to the occasion in terms of digital acceleration, that’s not been the case with Netflix.

As the mainstream media has taken a lot of pleasure in noting today, the streaming service’s pandemic boost appears to be over after it reported missing its subscriber target by over 2 million in its most recent quarter.

‘Only’ 3.98 million new subscribers signed up for the period from January through to end of March, compared to15.8 million for this time last year. Netflix attributed this to “the big Covid-19 pull forward in 2020 and a lighter content slate in the first half of this year, due to Covid-19 production delays”.

Whatever the reason, it’s not about to change in the near future with Netflix now predicting it will add a modest one million new subscribers in the coming quarter. CEO Reed Hastings argues:

Many countries have opened and closed over the year and we have got many countries right now that are in real crisis, fortunately the US is not one of them right now, so we have got a lot of evidence on that point. There was the initial surge of COVID, which was quite large in [its effect on] subscriber growth and viewing. But since then, every opening and closing, including the US over Christmas, really didn’t generate any noticeable material effect. I don’t think there is any material effect we are going to notice about future openings and closings again, because we have been through, in many countries, pretty intense surges, unfortunately…We had those 10 years where we are growing smooth as silk and then [it’s] just a little wobbly right now.

It’s certainly not down to increased competition from the likes of Amazon, Disney and Apple, he insists:

Obviously, there is a lot of new competition. We really look through all the data, looking at different regions where new competitors are launched or not launched, and we just can’t see any difference in our relative growth in those regions. [That] is what gives us confidence that it’s intensely competitive, but it always has been. I mean, we have been competing with Amazon Prime for 13 years, with Hulu for 14 years. It’s always been very competitive with linear TV too. So there is no real change that we can detect in the competitive environment. It’s always been high and remains high.

Linear TV still matters

The good news for the likes of Channel 4 is that the presumed onslaught from digital subscription services isn’t as clear-cut as it might sometimes appear, with Hastings openly admitting:

Our largest competitor for TV viewing time is linear TV. Our second largest is YouTube, which is considerably larger than Netflix in viewing time. Disney is considerably smaller, but we are sort of in the middle of the pack.  But in terms of what we focus on, it’s the same things that we have always focused on, which is our member satisfaction which drives retention, word of mouth that drives our growth.

There’s space for everyone, he argues:

YouTube and Facebook and those properties are multi-billion [dollar companies] and the Internet is only growing…[There's] lots of room to grow. We do want to expand. We used to do that thing of shipping DVDs and luckily we didn’t get stuck with that. We didn’t define that as the main thing. We define entertainment as the main thing, so then we expanded into original content. First, it was original series and then films and the animation and kids and unscripted, so bit by bit, we’re adding category. We’ve got a lot of work to do in terms of different types of entertainment and we will continue to do that.

That content creation has been hit by COVID shutdowns and that’s what’s going to take time to fix, he adds:

Normally, what we do day in and day out, week in and week out, year in and year out, is deliver programming that our members love and value and the shape of that gets determined sometimes two or three years in advance. You go into these production cycles, you go to planning cycles, and you have got a pretty smooth release of high-profile projects and smaller kind of passion projects and all those things. What happened in the first part of this year is a lot of the projects we had hoped to come out earlier, did get pushed because of post-production delays and COVID delays in production. We think we will get back to much steadier state in the back half of the year and certainly in Q4.

My take

That last comment will be reassuring news for those hoping for Bridgerton series 2 to debut on Christmas Day. But aside from that, 2021 may well be something of a tipping point year for Netflix. As Amazon arrived to disrupt and dominate the retail sector, so too did Netflix rise up to do the same to broadcast media. Except of course that Amazon’s now decided to have a go at repeating its retail success in the media space. Meanwhile Disney’s not leaving anything on the table for third parties to gobble up and Apple has its own TV ambitions. Suddenly the competitive landscape is a very different place. The disruptor faces being disrupted. Watch this space.