Streaming: Has Netflix peaked?
Netflix’s path to media dominance no longer seems so certain, said Steven Zeitchik in The Washington Post. Last week “the blue-chip giant of subscription streaming” reported it added 5.2 million new subscribers globally in the past three months, a million fewer than its target. Given Netflix’s 120 million subscribers, this shortfall “might seem minuscule to casual observers,” but it startled investors and gave hope to rivals. The shortfall on subscriber growth highlights the hurdles the “fast-growing, big-spending” company faces in its ambitious goals. Competition has ramped up, and former partners are now adversaries: “Disney and other giants are pulling shows and movies off Netflix as deals expire, hoping to monetize them in their own services.” AT&T, HBO’s new owner, has pledged to directly target Netflix. “Tech companies and their deep pockets have also joined the fight.” Apple and Amazon are spending billions acquiring rights and creating new series. Netflix, “one of the great success stories in the history of entertainment,” suddenly faces the possibility that it, too, will be disrupted.
Still, the rest of Hollywood would kill for Netflix’s supposed problems, said Jill Disis in CNN.com. Netflix bet on prestige early, with the political drama House of Cards. This year, the online video platform led the nominations for the Emmy Awards, breaking HBO’s 17-year streak. Netflix’s 112 nods came from 40 different series, headed by The Crown, a period drama. Getting to 5.2 million new customers is still “astonishing,” said Felix Salmon at Slate.com. Even better: Revenue—the money Netflix actually takes in—rose by 40 percent compared with last year. “Owning Netflix stock has never been for the fainthearted.” CEO Reed Hastings is playing a long game: Executives believe Netflix will eventually secure 250 million paying customers globally, and may even be aiming for 400 million. “To achieve that kind of scale, Netflix will have to become TV for billions of people around the world.” It will take years before investors know whether Netflix will reach those numbers, or go bust trying.
Any company valued at 167 times its earnings needs true believers, said Shira Ovide in Bloomberg.com. For investors Netflix—like Amazon and Tesla—is a kind of religion, and things get tricky when the foundations of a religion get tested. That’s why the miss on growth matters. Netflix has pursued a “high-risk strategy of splurging on programming” to gain subscribers. This past 12 months it upped the ante, forking out $10.1 billion for content—four and a half times HBO’s outlay. That “eye-popping” spending, which is only expected to escalate in coming years, depends on Netflix continuing to expand at stunning rates for a company of its size. “Subscriber growth isn’t a cherry on top of Netflix’s sundae; without the growth, there is no sundae.” ■