Netflix (NFLX -0.80%) binge sessions may actually be good for you in 2023.
The streaming leader is adding fitness classes to its content library supplied by Nike Training Club. The 90 classes coming to Netflix starting Dec. 30 represent a new content category, encroaching on fitness-focused subscriptions like Peloton (PTON +2.71%) Digital and Apple (AAPL +1.53%) Fitness+.
While the current subscriber base for those apps aren't massive, there's a lot of potential in the digital fitness space. If Netflix's partnership with Nike proves successful, it could be a cost-effective way to bring in new subscribers and improve customer retention.
The market for digital fitness classes
There's a massive market for connected fitness services. Peloton CEO (and former Netflix CFO) Barry McCarthy believes the company can grow to 100 million members.
McCarthy doesn't think Peloton will put 100 million connected bikes, treadmills, and rowers in people's homes, though. "The digital app needs to become the tip of the spear, so to speak, if we're going to reach 100 million members," he wrote in Peloton's third-quarter letter to shareholders after taking over as CEO.
McCarthy isn't alone in his assumption that there's a big market for digital fitness classes. Apple launched Apple Fitness+ two years ago, offering guided workouts and integrations with the Apple Watch. Apple wouldn't have launched the service unless it sees potential for substantial scale in the business.
As of the end of end of September, Peloton counted just 887,000 digital subscribers. But consumer awareness of the standalone product is just 4%, McCarthy points out. If Peloton could improve awareness of the subscription offering, it could grow much larger, he suggests. Apple doesn't disclose how many Fitness+ subscribers it has.
Netflix, for its part, doesn't have a consumer awareness problem at all. It already has over 220 million global subscribers. It also has access to one of the best digital billboards in the entire world, the Netflix home screen. Not to mention it has access to user data that can help it put the right content in front of the right person at the right time.
In other words, Netflix is in a great position to eat Peloton's lunch, which I imagine consists of lean proteins and lots of greens.
NASDAQ: NFLX
Key Data Points
Cost-effective content
Netflix plans to keep its content costs flat for the next few years, focusing on getting more engagement per dollar of content. Fitness classes may be one path toward that goal.
The cost to produce a 45-minute fitness class is far less than the cost to produce a 45-minute scripted drama. What's more, that fitness class may prove more rewatchable than even the best series on Netflix.
That said, viewership for fitness classes on Netflix won't be nearly as broad as for Stranger Things. But McCarthy's public goals and entries into the space from big companies like Apple suggest it's not a small number of people interested either.
Those who do engage with the Nike Training Club content, it could become an indispensable part of their routine. It may be the must-have content that keeps them subscribed to Netflix month after month, especially if it means they can ditch another subscription like Apple Fitness+ or Peloton Digital. And that can have a meaningful impact on Netflix, as it faces subscriber saturation and greater competition in streaming.
If Netflix sees some early success with fitness classes, it wouldn't be a surprise to see it push deeper into the space. It may partner with other content makers, or it could look to produce classes itself.
The company could bring a whole new perspective to the idea of watching Netflix while on the treadmill.
