Video streaming services have experienced bumper growth over the last decade, with a particular spike in sign-ups happening as the COVID-19 pandemic took hold. In the U.S. alone, the streaming industry was worth $24 billion in 2020, rising to $27 billion the following year. Some analysts expect the figure will hit $30 billion by the end of 2022. However, many streamers are experiencing headwinds triggered by rising inflation, supply chain issues, and consumer anxiety over a possible recession.
Netflix (NFLX -0.56%) has shed some 200,000 subscribers and has projected it will lose another 2 million in the first half of fiscal 2022. Elsewhere, David Zaslav, CEO of media giant Warner Bros. Discovery (WBD 0.09%), has suggested the streaming market is going through "a lot of turmoil" and that the firm's HBO Max unit has to adapt accordingly. But, despite both companies facing similar stresses, they are taking different approaches as the streaming wars move into a new phase.
Content as a strategy for growth
Netflix's shares are down about 70% in 2022, and some analysts are positing the firm's Q2 results, scheduled for July 19, could be worse than expected. Still, the streamer is in a bullish mood. In conversation with French outlet Le JDD, Netflix Co-CEO Ted Sarandos recently confirmed the company is on track to spend roughly $18 billion on new content in 2022 -- about $1 billion more than it shelled out last year.
The commitment to spending comes as Netflix has also been cutting staff. The firm has laid off more than 400 employees over recent months --approximately 4% of its workforce. To a cynic, such layoffs might suggest that the company is prioritizing movies and shows over its people. But Sarandos is implying that he believes content is what will spur Netflix's return to growth.
In his comments to Le JDD, the Netflix executive noted that the streamer has seen tremendous success with titles such as Red Notice and Squid Game, while the fourth season of Stranger Things racked up 1 billion viewing hours upon release. As Sarandos puts it, "Our strategy does not change: We offer quality content as quickly as possible to our subscribers."
Quality as a tactic for riding out tough times
Warner Bros. Discovery's Zaslav is also focused on providing customers with quality content. Speaking with journalists earlier this month, Zaslav noted, "The world has changed, and it's not about how much, it's about how good," Shortly after, HBO Max axed multiple shows it was producing across Europe.
While the move will starve many nascent HBO Max markets of localized content, it was arguably the right call to make. After all, Warner Bros. Discovery properties such as Looney Tunes, the DC Extended Universe, and the Harry Potter franchise enjoy global fan bases already -- even though they are all English-language in origin. For Warner Bros. Discovery, properties geared toward smaller audiences make little sense in a bear market.
The right approach is yet to be decided
Content takes time to make, and whether a streamer decides to maintain its pace of production or slow it down entirely, the business is often a gamble. After all, despite an executive's best instincts, nobody knows if a show or movie will work until it is released and audiences decide whether to watch.
For Netflix, spending big on content increases its chances of landing on a hit that will bring back customers -- or at the very least, stem its losses. Warner Bros. Discovery is putting more weight on its properties to generate success, which is a pressure likely to be felt by many of its showrunners and film producers.
Ultimately, the challenge for both Netflix and Warner Bros. Discovery is that making choices for the future is hard, especially when tomorrow is always full of surprises. So while the streaming wars are far from over, investors should pay attention to what Netflix and Warner Bros. Discovery say about their content budgets going forward. If one firm adjusts its path and starts following the lead of the other, that could be a solid sign of who will ultimately come out on top.