All Is Not Well For Netflix As Competition Builds Up For the International Streaming Giant
The expansion of the internet is brewing a different war among media giants, both new and those which belong to the past. For a long time, Netflix has enjoyed a free reign in the content streaming niche. But legacy media are coming up with a vengeance and Netflix is poised for a precarious run in the coming months.
Netflix’s dominance is being challenged
By the end of 2018, Netflix accounted for 68% of the content streaming market, Parrot Analytics said in a report. Dubbed Global Television Demand Report, Parrot Analytics noted that Amazon Prime and Hulu are the only services which come close to Netflix at a distant 10% and 9% of market share respectively.
The report implies that for the whole of 2018, content streaming services like WarnerMedia, Apple and Disney were nowhere relative to Netflix. The graphic below puts this assertion in perspective.
Source: Parrot Analytics
But that dominance has been greatly pared back by the up-and-coming platforms like Walt Disney. By April 2019, the number of paying subscribers on Netflix was 26% higher than they were at the same time in 2018. In particular, the streaming service boasted of 155 million subscribers worldwide, including those subscribed to the free trial.
In the same period, the total number of subscribers to streaming services were in the region of 500 million. This puts Netflix’s market share on the basis of subscribers at around 30%. Therefore, Netflix has begun losing ground, especially in terms of subscribers.
New competitors are cutting into revenues
The video streaming niche is getting hot. Media giants are lining up to snap up a piece of the bonanza. In April, Walt Disney Co. unveiled its own streaming services. The company did not hesitate to undercut Netflix’s dominance by offering subscribers cheaper services.
For starters, Netflix charged US-based subscribers $11 per month at the time of Disney’s launch. On the contrary, Disney was offering a comprehensive plan where subscribers pay a $70 lump sum for the whole year. As an alternative option, they could choose to part with only $7 monthly.
In the aftermath of the Disney launch, Netflix shares tumbled close to 5%. As a result, the company lost over $8 billion of its market value.
But competition is still building up. In particular, legacy media companies whose revenue was disrupted when Netflix brought content streaming to the mainstream are coming up to challenge its dominance.
Apart from Disney, whose premium streaming service Disney+ will go live this November, AT&T, and Comcast are also joining the party. Comcast will enter the market via NBCUniversal while AT&T has HBO Max as its proxy. Both streaming services should be operational by Q1 2020.
Obviously. The companies are coming with one mission; to lower prices as much as possible so as to get a chance to undercut Netflix. Notably, Disney+ will charge subscribers just $6.99 monthly, while NBCUniversal will offer subscription at $10 but with ads. HBO Max will be almost at par with Netflix in terms of charges.
Netflix to lose more than just revenues
In the ensuing battle for market share, there seems to be a “cold war” in terms of content. Notably, NBCUniversal and HBO Max will be going for two of Netflix’s successful shows. The Office and Friends will no longer be available on Netflix as companies with production rights take them to their platforms.
For starters, Friends is an HBO production and it will begin streaming on HBO Max once the platform is ready. Similarly, Comcast is pulling The Office from Netflix so that it can help to drive up subscriptions to the newly operational NBCUniversal.
These two shows are the most watched on Netflix, according to Nielsen data. Notably, “Friends” clocked 32 billion minutes in 2018 while “The Office” was ahead by another 20 billion more minutes.
Basically, the loss of these two great masterpieces means a possible deserting by Netflix subscribers. According to another Nielsen study, most Netflix subscribers watch non-original content. In particular, viewers aged between 35 and 49 years watch non-original content 65% of the time. The number is higher for younger viewers between 18 and 35 years of age. This age-group watches non-original content during 75% of their Netflix viewing time.
The implications of these statistics are grave for Netflix. A poll conducted in May shows that Netflix could lose close to 49% of its active and paying subscribers if “Friends” and “The Office”, and other shows from Disney and Marvel movies exit the platform.
What is the impact on Netflix?
Losing customers in such numbers could be devastating to Netflix. The company has built its reputation and market dominance on a business model which is almost exclusively focused on streaming services. This is to say that, were the findings of the surveys to come true, the company could be driven to the ground.
Before the fragmentation of the market, Netflix was growing exponentially. But the loss of crucial shows, which will certainly force many viewers to cancel their subscriptions, will be a huge dent to that growth.
Netflix’s competitors are well-established companies with highly diversified business models. For instance, Disney has major operations in the hospitality industry and Apple is a global smartphone brand. Others like AT&T and conglomerates in the media industry. This leaves Netflix as the underdog in an industry which it almost single-handedly defines.
The future for Netflix is bleak. To be sure, the giant is waking up to the reality that the content streaming industry is changed for good and that diversification of the business model and production of more original shows is the only way it can stay afloat.
Clearly, the company is at a crossroads; having been the giant in terms of subscriber share and market share and is now facing uncertainty. However, the company can redeem itself by using the money it previously put into licensing non-original content to produce more shows which will keep subscribers to the platform. Ultimately, the market is still taking shape and one cannot rule out surprises which might just tip the scale in Netflix’s favor once again.