Investors keeping close tabs on the streaming market likely know that Netflix (NFLX 1.71%) lost subscribers again last quarter. In fact, its second-quarter loss of nearly one million customers follows the first quarter's attrition of 200,000 paying subscribers.
While Russia's invasion of Ukraine and inordinate growth in the latter half of 2021 at least partially explains the contraction, it's still a very un-Netflix-like outcome. This is the pioneer and king of the streaming market, after all, and its 221 million customers are still only a fraction of the world's total households.
What's less apparent but perhaps more important is that it's not just Netflix bumping into a headwind. While the streaming industry continues to grow, the pace of that growth is slowing -- dramatically. Though we're not there quite yet, worldwide saturation of the addressable market may be in view. Investors should adjust their expectations accordingly.
A clear streaming slowdown
Netflix may be on the defensive here, but it's easy to chalk up its woes to company-specific circumstances. Take Walt Disney (DIS 0.82%) as evidence of this possibility. Its Disney+ streaming platform was able to garner 14.4 million net new customers in its most recently completed quarter, suggesting this business still offers plenty of growth opportunity.
Disney is something of an exception to the bigger streaming trend, though. A closer look at the fine print of the media giant's fiscal third-quarter results reveals that Disney only added about 100,000 domestic (U.S. and Canada) customers last quarter. Six million of those new subscribers are international streaming subscribers, where the company has only recently begun to promote services. And more than 8 million of those new subscribers are new Disney+ Hotstar customers, a version of Disney+ specifically aimed at Indian consumers.
It matters, if only because Hotstar's average per-user revenue is about one-fifth that of Disney+'s other markets worldwide, and international markets have been relatively under-addressed (and therefore easier to penetrate) thus far. When looking beyond, the entire streaming industry's growth prospects just doesn't look all that good anymore, and it's getting progressively weaker.
The graphic below tells the tale. Last quarter, the major names in the streaming business collectively only added a little over 20 million new subscriptions. That's the weakest growth since late 2019, before the launch of several powerhouse streaming platforms like Warner Bros. Discovery's (WBD -2.63%) HBO Max and Comcast's (CMCSA -0.79%) Peacock. Paramount's (PARA -4.31%)
Paramount+ and Pluto and AMC Networks' (AMCX -2.24%) handful of niche streaming platforms were also thrust into the spotlight by the COVID-19 pandemic, driving significant growth even though they were launched prior to the pandemic.
Data source: Comcast, Walt Disney, Warner Bros. Discovery, CuriosityStream (CURI -4.17%). AMC Networks, Paramount, Fox Corporation, Netfilx, AT&T (T -0.92%), Leichtman Research Group. All numbers are in thousands of subscribers.
The surge from the fourth quarter of last year, by the way -- the surge that temporarily broke the weakening streak -- was mostly supplied by Netflix, Fox Corporation's (FOXA 0.17%) Tubi, Disney+, and Paramount's Pluto. But that surge was more of a fluke than a sign of renewed strength, perhaps prompted by the introduction of new content in the wake of the early 2021 signup lull. The bigger, current trend still points to slowing growth.
Adjust expectations accordingly
Don't misread the message. The streaming industry isn't imploding. Indeed, it's still technically growing, even if at an ever-slowing pace. Some other clues also point to this trend.
For example, Netflix and Walt Disney are adding lower-cost, advertising supported streaming options, most likely because they recognize the business is becoming more competitive. Lower-cost, ad-supported options should drive signups to these services by virtue of reaching customers who weren't willing to pay the steeper prices of the ad-free versions.
Tivo's most recent survey of streaming customers indicates the average U.S. household now uses nearly nine different streaming platforms, all told, yet Nielsen reports that 46% of U.S. consumers feel overwhelmed by the sheer amount of streaming choices. It doesn't seem likely that these prospective customers are going to increase their video-viewing choices even more.
Whatever the underlying dynamic is, one thing is for sure -- we may well be on the cusp of saturation, making any more meaningful growth a very tough nut to crack. At the very least, shareholders of streaming stocks like Netflix and Warner Bros. Discovery need to adjust their expectations and think carefully before buying. The next era of streaming will only be won by the players that can make themselves must-have centerpieces of a consumers' streaming lineup.
