Netflix faces price pressure as subscriber growth slows
S E E D E D C O N T E N T
In recent years, Netflix has been an unassailable story of growth with a business model and stock price its entertainment industry rivals could only dream of.
But mounting competition from major tech, media and telecom companies, rising prices for top-tier talent and slowing subscriber gains have coalesced to put the streaming giant in a tough spot.
“They’ll lose 10 million subscribers in 2020 if they don’t have an alternative to the standard price of $13 per month,” said Laura Martin , a managing director at the equity research firm Needham & Co.
That decline may already have begun. In July, Netflix reported that it had lost 100,000 U.S. subscribers in the second-quarter of 2019 after predicting a gain of 300,000. The company is scheduled to announce its third-quarter subscriber numbers on Wednesday, a report that will be closely watched on Wall Street and in Hollywood.
If Netflix cannot maintain its once-overwhelming momentum, it could be forced to re-evaluate how it spends its money. There are signs of that Netflix is retooling, with Bloomberg reporting Tuesday that the streaming giant is pulling back on expensive comedy specials after shelling out as much as $20 million for exclusives from Dave Chapelle and Amy Schumer.
Netflix CEO Reed Hastings has teased that his company will be forced to adapt.
“It’s a whole new world starting November,” Hastings said at a Royal Television Society event in the U.K. last month. “We said that eventually all these companies will go direct-to-consumer. We’ve been preparing for this for a long time because we’ve known it’s been coming.”
With 151 million subscribers, Netflix has built one of the biggest subscription businesses on the planet after borrowing billions of dollars to fund a smorgasbord of content to keep consumers from canceling their accounts. The company is now regarded by investors as belonging alongside the tech heavyweights Facebook, Amazon and Google, with Netflix making up the “N” in the buzzy “ FANG ” stocks.
But Netflix’s slowing momentum has weighed on its stock, which had until recently been one of Wall Street’s strongest performers .
Concerns about growth came to a head in July, when Netflix’s subscriber decline led its stock price to plummet 10 percent. Shares are now down 30 percent since then, and a growing number of investors are betting that the stock price will continue to fall .
Netflix said at the time that it is hoping to sign 7 million subscribers in the third quarter, and its fourth-quarter subscriber projections will be the focus of scrutiny by investors and rivals.
To hit those numbers and fuel continued growth, Netflix has to keep spending on content and talent — a tougher prospect now that it is competing head on with companies like Disney and Apple, both of which are nearing the launch of their own Netflix-style subscription services. Netflix, meanwhile, has piled up more than $14 billion in debt , causing some alarm on Wall Street.
Michael Pachter, an analyst at the wealth management firm Wedbush Securities, has been one of Netflix’s biggest skeptics. He told NBC News he remains unconvinced that Netflix will be able to hold off its rivals — even comparing the company to WeWork, the office rental company that has recently run into financial trouble.
Pachter said he sees Netflix’s spending as creating “tremendous value for its subscribers” but being a problem for the stock price.
“I think they have an unsustainable business model,” Pacheter said. “WeWork had the same argument: ‘We’re building something to last.’ But getting to profitability risks cutting their share price.”
The competitive environment has gotten tougher not just for talent but also for popular library content. In the coming years, Netflix will lose the rights to “The Office” and “Friends,” after having spent an estimated $500 million to snag the rights to “Seinfeld,” and $200 million to sign “Game of Thrones” creators David Benioff and D.B. Weiss.
Netflix will also face new competition for viewers’ time from both Apple’s new streaming service, launching Nov. 1 , and from Disney+ later this month. Both services are cheaper than Netflix’s most popular tier, which is $13 per month .
Courtney Williams, head of partnerships for New Zealand-based Parrot Analytics, which tracks global demand for TV, said that Netflix shows remain popular but that “the super growth has already slowed.”
“Demand is a leading indicator for subscription growth,” Williams said. “And we’ve seen that it’s beginning to plateau.”
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I think Netflix was doing much better when it was doing more of its own material, which it now has a lot of competition on from other services.
What do you think?
It was. Honestly, the only reason I've kept Netflix is "The Crown". Amazon Prime has better selection and variety, IMO, so if not for that one series, I'd have cancelled my Netflix.
As Disney comes on with a full blown streaming service, and other choices develop as they are all the time now, Netflix will have to lower it's price and then as a result of that cut back on the number of shows it produces.
There used to be four networks and then there were a couple hundred cable channels and now there are thousands of viewing options. We are at an overload point.
I have Roku so I have seen such services as Pluto Tv and Zumo Tv come on the scene. They are free and have an endless (seemingly) number of channels. Most of it is crap or mindless entertainment or news or documentaries, but it is a LOT of content which is free. Low end Streaming services are beginning to realize that they can make money by giving the content for free and inserting commercials. I have Hulu and hardly ever use it. I canceled Netflix a few months ago but will sign back up for it and watch shows I want to watch and then cancel it again after a month or two. You can pay for these streaming on a month by month basis and there are no contracts.
No one could possibly watch everything out there and the subscription services may have to lower their prices in recognition of that fact.
I feel ya (pain). And yet, it is true that production costs for original high-quality writers, productions, and performers is a 'beast'! Catch-22. LOL! I have ROKU for Netflix and Amazon Prime (because I had it before it joined cable put them in its line-up).
I think my biggest problem is I get stuck in my ways a bit as I age. That is, once I get something I don't like to let it go! I would like to let some tv go! May be I need television 'counseling'?
What do you think, John? Counseling?
I think Netflix still making own movies. EI Camino: A Breaking Bad Movie. Have you seen? It looks like competition is intensifying in this area. So there will be more interesting content. Good for us.
"Jessie, what kind of pizza you like?"
"Pepperoni."
I have just gotten done watching "Glitch" Season 2 on Netflix. Just having logged out and seeing this on the front page, I return to comment. Netflix, Amazon Prime, Comcast - the problem for me is an avoidance of getting lost in a virtual media landscape. Gone are the days when I can get to bed at a "decent" regular and circadian sleep rhythm time like say 10 PM. (I miss that.) There is always one more 'duty to watch' on my 'saved' lists!
Amazon Prime service has a lot of interesting, but redundant style movies. But. Amazon Prime offers services like package delivery and Amazon Music to boot! It is already the cost of Netflix recent escalation cost ($13.00 a month.) So I can see why Netflix felt it needed to step up. I like Netflix best at this stage; but the "services" of the competitor are important too. So, right now I am in suspense.
And that's a problem.
For one of my complaints is this: "Too much" tv choices. It's not the cost. I can pay it. The real question I have about Netflix and Amazon Prime service is should I get rid of one of these two (Comcast bundle stays) because of what I perceive to be overlap, or becausing it is killing me slowly.
Blah!
NOTE: I approve of what Netflix is doing with its introduction of new movies and originals. I do not care for the humor shows. (Though, I know I would laugh like-well- hell.)
It looks like this article ''jumped the gun''. According to the latest info they have regained the streaming customers.
Hey Kavika! This information (above) is from your link. Without my rereading the portion of the article above, the two articles seem to be in agreement in regards to expectations in November 2019! Also, the projections of new companies (products) coming online in 2020 as people trade out the 'old' for the new.
Very interesting stuff. First, sooner now the "Big 3 networks" of yesteryears will be crowded out. Cable is getting squeezed for its expansive, unwieldy, and costly "bundles," and now the proportional streaming services are gathering competition.
So many choices. What are you, me, we, going to do? (We only have two eyes to watch with! LOL!)
I need to get rid of regular cable, I already have Netflix and Hulu. I need to keep my wifi/internet access and get another streaming service for the local and other cable channels that I prefer.
Regular cable is costing too damned much. I pay $134 a month now.
Yeah me too. I have the 'works.' And, it is at a discount rate that I almost am ashamed to mention! (Me embarrassed?) Anyway, my discounted cable product (cable/phone/internet) is way more than you list for yourself. And, I am required to contract for it every two years.
What to do? I have shows running out of my ears.
—Stuck in "Showsville" without a paddle.
I'll give people two options away from tv.
One is Scribd, which lets you have access to a large number of e books and audiobooks for 9 dollars a month. This is the best value out there for any book or audiobook service. The extent of the content they have is almost mindblowing.
The other is The Great Courses. For 10 dollars a month you have access to hundreds of video lecture series on all sorts of topics that are often on a college level. The typical series will have 24 half hour lectures on say, history topics, science topics, mathematics, religion, law, fashion, personal growth etc.
The only drawback is that using such a service is potentially very time consuming. But it certainly is well worth 10 dollars a month for people who are interested.
I have Scribd too. I failed to mention it. I love Scribd (on my computer and on my phone)! It is a great investment in listening and learning and I recommend it to Newstalkers. Scribd even has monthly magazines in its regular contract. Unfortunately, there are only so many hours in a day.
I simply can't do my work projects and make room for all that is being offered up (free included) in today's world. Because I am technical in mind, I thought I could keep up with tech. It's hard. The apps are outpacing this old—er boy!