• by Wayne Friedman , October 11, 2022

Netflix’s $23 billion in TV production commitments is based on higher levels of subscriber growth -- and could spell trouble for the big streamer in the near term, says Pivotal Research Group.

At the same time, there could be additional problems when it comes to competitors continuing to ramping up content spend -- also into the billions -- and taking on big losses, says Jeffrey Wlodarczak, media analyst for Pivotal.

He says this is worrisome -- “especially on exclusive sports content [spend] which could lead to lower than expected subscriber growth and/or higher than forecast spend.”

And it is not just the linear TV-network centric major premium players like Walt Disney, Warner Bros. Discovery, NBCUniversal, and Paramount Global, he says. There’s more concern over digital-first video streaming options.

“Amazon And Apple (and potentially Google and Facebook) may get far more aggressive in SVOD [subscription video-on-demand] and given OTT [over the top] products are not their core business they may be willing to generate material losses in the streaming video business and bid up materially for content.”

Near term, he is concerned about Netflix’s addition of an advertising-option for the service -- which could ultimately lower average revenue per user (ARPU).

Ad-supported options on streamers typically are priced at 50% or more discount to those ad-free options.

He adds: “We view Netflix's move to launch an ad supported alternative as fraught with ARPU, technological, financial and product risk.”

“If NFLX were an upstart player looking to add subscribers, ad supported could be a no brainer but as the incumbent operator it seems to offer more risk than reward mainly given the existing sub repricing/results variability risk.”

“We don’t see significant subscriber acceleration in the key US market from the move, beyond a potential short-term benefit.”