Advanced Television

Netflix – breaking bad?

July 22, 2021

Netflix seemed relaxed about raining on HBO Max’s parade (for achieving impressive subscriber growth) by telling markets: “HBO doesn’t bother us at all”.

Fair enough – though the contrast between HBOs North America growth and Netflix shedding of 400,000 subs is marked. But more worrying for them is the worldwide growth and share gains of Disney+, Prime Video and Apple TV+.

Of course, Netflix is still way ahead. And the company says it believes that streaming sector growth is still good for all streamers, as broadcasters still take most of the viewing overall. Really? Netflix has stopped growing in its most profitable market. It is almost always now the most expensive brand in any competitive market.

At its results management was critical of the merger culture in media and stated its aim to stay independent. It said mergers were always meant to be 1+1=3 but were often 1+1= 2 at best. That is true, but you do wonder if it amounts to whistling to keep their spirits up.

Netflix relies on a steady pipeline of attractive content that it markets heavily to subs and prospective subscribers. It has borrowed $15 billion to get to this point, where it says it can sustain its own operations from revenue. But in the pandemic – a streamer’s gift, you’d think – it has cut marketing spend and had to cut production spend. As a result, in all markets, it has either lost subscribers or at least seen growth throttle back.

The cut in production has just emphasised how sharp the double-edged sword of the Netflix model is: more content that appeals across a broad audience heavily marketed = success. A blip in either is a bump in the road that clatters through the chassis of the whole business in almost real time. One bump is fine, two is a ripple, three is very uncomfortable. Smoothing the bumps needs money, but if Netflix ever needs to return to the debt market (which it seems inevitable will soon be more expensive) it might be forced to conclude that being a loner is not such an attractive option.

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