The Streaming Service Combat
Once the top player in the streaming service space, Netflix has lost over 70% of its market value today from its peak in October 2021 when the price hits $700 a share, marking the stock’s biggest drop since 2004.
NFLX Stock Price January 2020 – July 2022*
*Line Chart: NFLX Stock Price, Bar Chart: XNAS
The stay-at-home economy fueled by the Covid-19 pandemic sent Netflix's paid viewership on a moon-shot, and by October 2021 had swelled its market cap to $310 billion. But as has been the case of late with many tech darlings, Netflix struggles to invent an earnings trajectory steep enough, from a still modest base, to forecast that the stock could keep ascending in the years ahead and the company seems to be hitting a plateau. The company reported a loss of 200,000 users, mostly caused by the loss of its 700,000 Russian viewers following Netflix’s decision to halt its operation in Russia after the Ukraine invasion. To make matters worse, although net earnings were growing, Netflix kept posting tiny or negative free cash flow numbers driven by its quick, heavy expenditures on movie and series production required to keep up with demand.
Keeping Up with The Competition
Today’s audience has plenty of streaming services to choose from—notable ones include:
How Much is Too Much?
A January 2022 survey by Morning Consult indicated that US viewers would typically pay between $8 to $14 and $11 to $16 for ad-supported and ad-free streaming services respectively. While all the mentioned streaming service providers above offer pricing within this range, Netflix has been cons has been constantly increasing its prices over the years to the point where its premium subscription, which offers four screens of play, a must for many families, and 4K content, is $19.99 a month. Netflix’s mid-tier subscription is $14.99 a month but takes users down to just two simultaneous screens and knocks out 4K content, which many of their competitors offer in their basic packages. Its Basic subscription at $9.99 a month does not even offer HD content, which is a setting that does not even make sense in this day and age.
Nielsen’s data above suggests that currently around 50% of the US population are paying for more than one subscription. However, with inflation at its highest rate in the past 40 years, customers are becoming more and more conservative with their expenditures and will start reducing discretionary spending, starting from products and services they least value. They will rethink whether each of their streaming subscriptions are producing content worth their price and as mentioned, Netflix is the most expensive option in the market today.
Content is King
People are always arguing about which company offers the best content and while it comes down to personal preference, all streaming service players want to grab the biggest chunk of the market and most of them plans to obtain cult following through its exclusive, original contents that can cater to various demographics.
Netflix’s Top 10 TV shows and Movies majority consist of its original contents—many of which have ran a handful of seasons and brought in millions of global streams within the first week of streaming. Recent popular original contents include Stranger Things, the Umbrella Academy, Ozark, Bridgerton, and Squid Game. Today, 50% of Netflix’s US library is made up of original titles and will be 75% by 2024. Netflix is putting much of their effort and cash in making original contents to keep up with consumer demands and maintain its share of the market.
Disney seems to believe in the same model and so far, is making good returns on its investments in Star Wars and Marvel. According to Nielsen streaming data, Obi-Wan Kenobi, The Mandalorian, and Loki are Disney+’s most-watched series, each garnering billions of minutes within the first week of their release. The streaming service also releases special Disney+ also offers its audience early access to select new Disney movies, such as Mulan, Cruella, and Black Widow through its Disney+ Premiere Access program for $29.99 a movie. They also offer a few movies that are exclusively released on Disney+ for all its subscribers without Premiere Access requirements, such as Luca and Soul—both of which garnered over 10 million streamers during their first weeks of release.
Tencent Video, also known as WeTV outside China, is another big player in the industry. Their strategy is to produce local original content in each country they serve. So far it has proven to be a relatively effective strategy with the success of its original Indonesian series Layangan Putus that went viral immediately after its release end of last year. Layangan Putus set a record for WeTV as within the first day premiering, Layangan Putus was streamed 15 million times and received a 7.8/10 rating in IMDb. Memes generated from the series also furthered the hype of the movie.
Currently there are also several Indonesian players tapping into the streaming service:
While it is harder to compete with international providers like Netflix and Disney+ for high quality movie or series, local players try to tap niche market especially sports tournament like football, basketball, and racing; leveraging on their fanbase to gain subscribers. One of the most popular sport shows is premiere league which streaming rights held by Mola TV since 2019 until now. As for next year, the rights will be moved to Vidio and most customers already stating that they are going to migrate. Other than that, around 2.6 million of MotoGP Viewers came from Indonesia and therefore beneficial for gaining subscribers.
See What’s Next
The streaming wars have been heating up for years. Facing increased growth pressure, all platforms are concerned about the risk of subscription fatigue. There is a possible shift in consumer streaming habits with the population returning to work from office and spending less time at home. Streaming services need to adapt and come up with a more sustainable strategy to win the market.
Ad-supported streaming subscriptions with lower pricing might enable these streaming providers to acquire new customers. Disney is planning to launch a new ad-laden Disney+ late this year. Netflix also shocked the media world by announcing it plans to launch an advertising-supported service after years of refusing to consider commercials. Netflix could expand its appeal by offering an option to pay $9.99 (or less) per month — a price level HBO executives believed was essential to generate significant numbers of new customers for customers used to paying $15 per month. HBO Max announced its $9.99 per month ad-supported service last year.
Bundling could be another popular strategy, as seen with Disney, which offers a combo of streaming services Disney+, Hulu and ESPN+ at a discounted rate. Cross-industry bundling are also evident with the likes of Hulu bundling with Spotify. In Indonesia, many streaming services partner with telco companies to capture more users as telco providers have a substantial customer base and internet penetration is heavily reliant on mobile phone access. Telkomsel offers Telkomsel Max Stream, partnering with several streaming services like Netflix, Hbo Go, Disney+ Hotstar, and Viu. Telco partnerships also enable streaming services to offer direct carrier billing to its customers, which is especially convenient in a country where credit card and bank account penetration is still relatively low.
As the industry rapidly evolves, there will be clear winners and losers. It will be interesting to see how a potential winter surge and stiff competition will affect the sector in the next coming years.
OCBC NISP Ventura
June - July (Wk1) 2022 Newsletter