Netflix (NFLX +3.23%) posted sober Q2 results in late April, showing a loss of 200,000 subscribers-the first drop it has experienced in over a decade. The future also looks less than rosy, with an additional 2 million customers expected to ditch their monthly plans during the current quarter alone. Competing streaming services Disney+ and HBO Max have both made franchises a keystone of their services, and have seen their subscriber numbers grow quarter over quarter. Now may be the time for Netflix to seriously invest in content brands of its own.
Everyone comes for the king
Despite its struggles, it's important to remember Netflix has the largest number of streaming subscribers globally: almost 222 million customers across more than 190 countries, beating out its nearest rival Amazon Prime Video's approximately 200 million.
Image source: Getty Images.
In 2013, Netflix co-CEO Ted Sarandos, then the company's head of content, said, "The goal is to become HBO faster than HBO can become us." In May 2020, Warner Bros. Discovery's (WBD 0.62%) HBO attempted just that, launching HBO Max. Since then, HBO Max has attracted 76.8 million sign-ups worldwide across 61 markets.
Disney (DIS +0.14%) may pose the biggest threat to Netflix's dominance. While Netflix's subscriber count shrank, Disney+ saw 7.9 million new sign-ups in its last fiscal quarter, bringing its customer tally to almost 138 million around the world. Some industry experts, including analytics firm Digital TV Research, expect Disney+ to take Netflix's subscriber crown by 2025.
Franchise, franchise, franchise
Anyone scrolling through HBO Max or Disney+ will almost immediately be hit by a sense of the familiar. From Looney Tunes, Harry Potter, and Superman, to Cinderella, Toy Story, and Iron Man, both services have deep banks of content featuring well-known characters and worlds. Warner Bros. Discovery and Disney can also leverage these franchises to create whole new shows and movies featuring brand new characters within well-established worlds.
After the theatrical success of The Batman, WarnerMedia is producing a spinoff show for Colin Farrell's Penguin, while Disney has had success with Marvel spinoff series such as Loki. Disney+ added some 118,000 new customers on the day the second season of The Mandalorian launched, with 71,000 more signing on for the Avengers spinoff Hawkeye, while HBO Max also saw a significant bump in sign-ups when it debuted Wonder Woman 1984 on the service.
Netflix, on the other hand, has nothing approaching a heavyweight content brand of its own. Sure, Sarandos would like you to believe Stranger Things is "as valuable a franchise as exists today," but beyond T-shirts and a handful of mobile games, it's not keeping Mickey Mouse awake any time soon.
Building brands
Though Netflix is currently lacking a pool of characters it can exploit, that's not always been the case. The company spent big in the mid-2010s, developing a handful of shows with Marvel and Disney including Jessica Jones, Daredevil, and Luke Cage. However, those shows have since reverted back to Disney and can now be found on -- you guessed it -- Disney+.
Still, Netflix seems to still see something in the franchise model. It has announced plans for a prequel to its Regency Era romance Bridgerton, and the Stranger Things creators are already teasing a spinoff.
Indeed, Netflix has even started to get back into the superhero realm with last year's release of Jupiter's Legacy, part of the Millarworld comic book franchise that Netflix has owned since 2017. But with a 41% rating on Rotten Tomatoes, it might come as no surprise that Netflix has already axed the show.
Netflix is planning to spend about $17 billion on new content in 2022, which puts it just behind the $18 billion WarnerMedia has earmarked. Both budgets pale in comparison to Disney, which is committing $33 billion in fiscal 2022 -- an increase from the $25 billion it spent last year.
Netflix could still acquire some iconic brands that have baked-in fans. After all, it has backed shows featuring nostalgic characters such as Transformers and He-Man. But when you consider the $4 billion Disney paid for the Marvel superhero franchise in 2009, or the additional $4 billion it shelled out for Star Wars in 2012, such a strategy could be a big ask for shareholders.
Still, it's possible Netflix doesn't need superheroes and space operas to pull subscribers back into the fold. After all, it's seemingly finding success with its slew of reality shows and comedy specials – content that costs significantly less to produce than galaxy-saving adventures.
Ultimately though, it will be viewers who will decide what they want -- and they will show that in the services they do, or don't, subscribe to. Those interested in what Netflix has planned might not have to wait long. The company will host its second annual Geeked Week event from June 6-10, where it's assumed Netflix will discuss new details of upcoming shows. That lineup includes its much-awaited adaptation of Neil Gaiman's The Sandman graphic novels, which turned a single original comic book into a universe of connected tales. If the show drives significant launch-day sign-ups, streaming service investors should keep an eye on whether Netflix adapts the rest of the series -- and possibly even more franchises.
