Netflix (NFLX 0.09%), Disney (DIS 0.76%) Plus, Apple (AAPL +1.08%) TV, Amazon (AMZN +1.96%) Prime, and other streaming services have seen steady subscriber growth over the past few years. However, in this segment of "The Virtual Opportunities Show" on Motley Fool Live, recorded on Feb. 8, Fool contributors Demetri Kalorgeropoulos and Rachel Warren explore some possible reasons why some of the streamers are having trouble retaining users.
Demitri Kalogeropoulos: This is in The Wall Street Journal. This is from late last week. The headline is "Disney Plus, HBO Max, and other streamers get waves of subscribers from must-see content, but keeping them around is hard." Basically, The Wall Street Journal got ahold of some cancellation trend data, it's a data analytics company called Antenna. This company tracks, sign-ups and cancellations across the country for these big streaming video giants like Netflix, Disney Plus, we've got HBO Max [a part of AT&T (T +0.02%)], and Apple TV.
What's cool in the data recently is that what they're seeing is, you can always see a big spike in user acquisitions around the time of a popular release. Some of the big ones that stood out recently was when Disney released the musical Hamilton. This was in 2020 when early in their service, or when Apple TV released the movie, Greyhound, which stars Tom Hanks. You will see a huge spike in people signing up around that time.
But what the article talks about it is often many of those subscribers end up canceling in the next few months or in that month after the month after they're done watching whatever it is brought them to the service, after they're done binge-watching whatever show it was. This is interesting and I saw this is maybe a problem for a lot of companies in this space, especially ones that have smaller content catalogs or smaller budgets.
Basically, you need a steady stream of shows and movies coming out every month, like dozens of them to keep people engaged in your service. It also, it takes time to ramp up that production ability. As we've seen, Netflix has been working on that for over a decade and they still have struggles. I took a look at Netflix reported earnings about two weeks ago and they surprised a lot of people. Well actually their engagement was good and their cancellations were good, but their new sign-ups were trending lower than they did in the pre-pandemic days. Management was confused about that.
They were surprised. I guess the idea was that the pandemic got us all interested in digital content and then there might be a little lull afterwards when we go outside and see the real world for a while but then things will get back to normal like it was in 2019. But that's not happening so far in Netflix and maybe this is part of it.
Especially because Q4 was such a huge quarter for them in terms of releases. Squid Game was so big and they have a lot of their content spending from the earlier part of the year got pushed to the late part. They still just barely met their expectations. Maybe that's one reason why I guess people are maybe looking at content a little differently, digital content right now, I don't know.
Maybe you guys have a theory about this, but maybe there's two little high-quality content on these platforms. Or maybe there's too much because all these companies have just flooded the market with so many good shows and movies that they're coming a little bit less valuable to people. Maybe people are getting bored, by the streaming choices out there. But what do you guys think about your own streaming habits lately?
Rachel Warren: Yeah, I can weigh in. I thought this was really, really interesting. I have several different streaming services that I have subscribed to for a while. Netflix, Amazon Prime, and HBO Max, [laughs] the big three. I wonder if some of this drop-off is like what you were saying, maybe people utilize that free trial period perhaps although I don't know if it's always a month, maybe sometimes it is to view something they really want to see like a movie or a show and they binge-watch it and then they're done. I don't think it's a shortage of content that's the issue.
I mean, there is so much content out there. I think often it gets to the point for people where maybe you've seen what you want to see on that platform, and you just don't need all three subscriptions. Maybe you are watching more of one versus the other. I too was surprised by Netflix's most recent report, which I do think investors overreacted to a little bit.
But I do also think that this is something that's not new to the discussion we've talked about this before, but Netflix has maybe exhausted a lot of its ability to grow in North America. There's obviously a lot of global opportunities for expansion as well, but it is definitely a challenge. I think just the fact that there is so much content out there that's constantly competing for viewers' attention, and that there are so many different companies within the space.
Besides these big players, you also have smaller ones like Peacock TV [a part of Comcast (CMCSA +0.65%)] is one and there's a bunch of smaller ones. I just tend to think it's an excess and it's just going to be increasingly difficult, it doesn't mean these companies can't win. But who knows? Maybe we'll see some of them going in the metaverse to try [laughs] and draw in new viewers because I don't know what the solution is, but I definitely don't think it's a shortage of content.
