Is Netflix Slowing? Is It Just Getting Started? Yes and Yes

Even Netflix’s smallest move tends to set off a veritable tsunami of media coverage and analyst speculation.

So it’s no surprise that the headlines exploded after the streaming giant’s Friday afternoon announcement that it’s implementing its first North American price hikes since October 2020.

Especially since the $1-to-$2 increases — to $19.99 per month for its top-tier, 4K offering and $9.99 for its basic plan — will make its services more costly than HBO Max’s $14.99 no-ads tier (which, at launch, was pronounced suicidally high by critics) and Amazon Prime Video ($8.99 for those who don’t get it as a benefit of a Prime membership).

According to some of the immediate tea leaf-parsers, this was an ipso-facto admission of desperation, or at least a pressing need to raise revenue, by Netflix. Some deemed the “stealth” Friday timing of the announcement to be particularly suspect.

Well, yes — there’s no doubt that Netflix could use some extra cash.

The outcomes of the hugely escalated competition in the paid-subscription streaming space hinge, of course, on attracting and retaining customers — which in turn hinges on a combination of content and pricing.

As most recently confirmed by MoffettNathanson Research Analysis, Netflix not only continues to be by far the largest investor in content — it’s doubling down. According to this analysis, in last year’s fourth quarter, Netflix released 835 content episodes — up from 554 in Q4 2020 — to runner-up HBO Max’s 302 episodes.

In 2021 as a whole, Netflix produced 2,489 original titles between 2015 and this September, compared to 420 for Prime Video, according to Ampere Analysis.

It invested $13.2 billion and accounted for 30% of total subscription-based video-on-demand (SVOD) content spending and 6% of total global content investment for the year. That’s compared to total combined content spend of $8 billion for Apple TV+, Disney+, HBO Max, Peacock and Paramount+ for the year.

Netflix was the fourth-largest investor in overall professional video content ($14 billion). The top spenders were Comcast and its subsidiaries ($22.7 billion) and Disney ($18.6 billion), whose totals include spending on both linear TV and theatrical films, and Google ($15 billion).

And although Netflix hasn’t revealed its 2022 content budget, it’s safe to bet that it — along with all of its competitors — will be upping spend — in other words, upping the ante — again this year.

Netflix still had more than $18.5 billion in debt as of September 2021, and its growth in its largest market — the U.S. — has been slowing.

Although it operates in more than 190 countries and has a major head start on non-local competitors in nearly all of them, it’s also facing stiffer competition in international markets.

The bottom line is that Netflix is slowly losing share as the streaming wars accelerate toward a crescendo.

But let’s not forget that after more than 23 years in existence, Netflix still has the largest number of paid subscribers — 214 million as of third-quarter 2021. That includes 74 million in North America— its largest market — but as noted, various reports and estimates indicate that growth is slowing here.

Based on defining viewership as anyone who watches Netflix at least once per month (whether or not they pay for it), eMarketer/Insider Intelligence projects the service’s worldwide viewership will grow from 617.4 million in 2022 to 670.7 million (8.4% of the global population) by 2024 — and that Netflix will have 178.5 million U.S. viewers in 2022, up 2.2% from 2021.

While that doesn’t say anything about Netflix’s financial status, it’s still interesting as a sign of relevance and vitality.

Netflix also commands an estimated 21% to 27% of the U.S. SVOD market, depending on the source. And it remains No. 1 in streaming share of total U.S. TV usage, with only YouTube coming close (7% and 6%, respectively), per MoffettNathanson.

One analyst estimated that upping its subscription prices will yield Netflix about $2.5 billion per year in incremental revenue — a nice little chunk to help defray those huge and rising content investments.

Will Netflix’s churn rates rise as a result of the price hikes?

Based on historical patterns, as documented by actual transactions tracking by Antenna, at least a short-term uptick in churn is a given for any streamer that raises its rates.

But the data also documents that outside of such bumps, Netflix’s churn rate has remained remarkably low and consistent over time compared to other streamers, at 2.4%.

While overall churn rates for SVODs have increased along with the number of options and the costs of subscribing to multiple services, Netflix appears to be considered a fixed part of household expenses — akin to a utility — by most subscribers.

That’s why Netflix is inevitably part of the most popular streaming service bundles, as reported in various consumer surveys.

With Netflix offering more quality, original content than its competitors — including recent major hits like “Squid Game,” “Red Notice,” “The Lost Daughter” and blockbuster “Don’t Look Up,” most North American subscribers are likely to take a small monthly increase in stride.

The company is also, wisely, pioneering a push into gaming offerings that are bound to give it an edge in attracting and retaining subscribers.

And in the international markets that it’s counting on for its heaviest growth, Netflix is certainly savvy enough to peg pricing to the competitive scenario. Witness its having slashed its prices in India, its biggest opportunity for expansion, in December, to better compete with Disney+ Hotstar.

App Annie recently reported that Netflix is on track to have more than 1 million app downloads in more than 60 countries as of this year, while Prime Video and Disney+ are projected to have 1 million+ in only about 30 countries.

But as we all know, public companies, including Netflix, are adept at revealing what they want us to know and obscuring info that’s not as positive, or is positive but too strategically important to let competitors get wind of.

It’s also important to remember that, in handicapping the streaming race, some key types of hard data can be tough to come by, particularly for international markets. That’s why, as usual, analysts disagree as to whether Netflix will meet, exceed or fall short of its own growth projection when it reports Q4 2021 results this week.

But available data and sophisticated projection models aside, common sense would seem to say that after uncharacteristically being burned by over-projecting once last year, it’s a safe bet that Netflix will make sure it under-promises and over-delivers from now on.

Author's note 1.21.22: It seems that Netflix has gotten a bit overconfident after all. Turns out it did miss its forecast 8.5-million sub adds for Q4 2021, albeit by very little (it reported 8.3 million adds in its 1.20 earnings report). Its forecast of just 2.5 million adds for Q1 2022 sent its stock down 20% following the report, and it admitted for the first time that competition from other streamers may be affecting its growth rate. Also, after this column was posted, HBO Max cut its own prices to exploit Netflix's price hikes to HBO's fullest advantage. But I'm still betting on Netflix remaining on top of the heap for some time. Subscriber volumes are critical, but no streamer can indefinitely afford to spend more on content than it's taking in in revenue. Undercharging for subscriptions is a prescription for failure over the long term, even when there is also an advertising revenue stream. Ask magazine publishers.

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