Netflix (NFLX +0.14%) has yet to recover from the shocking drop in subscribers in the first quarter. Not only was its stock crushed, but it also announced layoffs at its Tudum division, which it just launched in December. It also said it would crackdown on password sharing and put ads in a new, lower-priced subscription tier. All this is generating talk of the streaming service becoming a takeover target.
It was a sea change in how people view Netflix's position in the streaming market, but with Warner Bros. Discovery pulling the plug on its ill-advised CNN+ service less than a month after it launched, Alphabet's YouTube seeing a slowdown in ad revenue, and surveys showing fewer consumers subscribing to at least one service, it may be time investors in Amazon.com (AMZN 1.66%) and Disney (DIS +0.31%) consider whether they need to be worried, too.
Streaming fatigue may have finally arrived, and we may see consolidation occur.
Image source: Getty Images.
An industry wake-up call
Although the company's revenue rose 10% in the first quarter to nearly $8 billion, that was about half the growth rate of 2021. In addition, profits dropped to $1.6 billion from $1.71 billion in the year-ago quarter.
Netflix's most jarring number was its loss of 200,000 subscribers for the quarter, the first decline since 2011. This was especially dismal because Netflix had forecast it would have between 2.5 million and 4 million net additions, so investors were blindsided by the drop to 221.64 million worldwide subscribers. It didn't help, either, that Netflix expects the carnage to continue in the second quarter, with a potential loss of as many as 2 million subscribers.
Netflix is still seeing growth in viewing time, according to Nieslen data, as the chart below shows. But with inflation soaring to levels not seen in 40 years, maintaining a subscription is no longer a priority for consumers.
|
Streaming Service |
May 2021 |
February 2022 |
|---|---|---|
|
Netflix |
6% |
6.4% |
|
YouTube |
6% |
5.7% |
|
Hulu |
3% |
3% |
|
Amazon Prime |
2% |
2.3% |
|
Disney |
1% |
1.7% |
|
Other SVOD |
8% |
9.5% |
|
Total SVOD |
26% |
28.6% |
Data source: Nielsen, as provided by Netflix. Table by author.
The good, the bad, and the ugly
That was the big hurdle that CNN+ had to get over. People weren't watching the free version of CNN (prime-time viewership collapsed 70% in the key 25- to 54-year-old demographic in February), so it's hard to imagine people paying for CNN+. And with just 10,000 subscribers at the launch, Warner Bros. was merciful in killing it off quickly.
But what about Amazon and Disney? Fortunately, it seems they have more to offer viewers than Netflix.
No one is paying Amazon $139 a year primarily for its Prime movies. They're signing up for free shipping on its e-commerce site and getting movies, music, books, and a few other services thrown into the mix. Its movie catalog is no less (or more) watchable than Netflix's, but it's just a side benefit of the shopping app and not the main motivator for signing up.
NASDAQ: NFLX
Key Data Points
Disney, on the other hand, brings several benefits to the table. Not only are you buying into the brand, but it comes with an extensive catalog of top-notch classic and current movies and a very affordable price tag ($8 a month).
But it has yet to consistently offer good current original-streaming programming and is also planning on introducing ads into the mix, suggesting its aggressive growth goals may not be as attainable as originally believed. Still, the service is likely a keeper for most subscribers.
Image source: Getty Images.
Reattaching the cable
While it was expected the streaming wars would devolve into consumers willingly paying for just two or three services and discarding the rest, cutting the cord with cable was supposed to be about more choice at lower cost. It's gotten to the point where putting together your own package of streaming services is almost as expensive as cable.
It was poor timing for Netflix to raise its subscription prices, even if necessary, and the addition of ads may only cannibalize the main service. While Netflix will surely remain a leading choice for many, Amazon and Disney don't seem to have much to worry about, either, though the days of eye-popping subscriber additions may be in the rearview mirror for them, as well.
