Squid game took Netflix out of its funk.
After a collapse the company blamed on pandemic production delays, it had achieved real success. About 140 million subscribers watched at least a few minutes of the dystopian Korean thriller. Walmart started selling Squid game T-shirts. Netflix stock has reached record highs.
Yet in the United States and Canada, all this success has resulted in only 70,000 new customers. Of the 4.4 million people who signed up to Netflix in the third quarter, less than 2% were from its largest market.
Streaming, or watching TV online, has reshaped the media industry and the United States has led the way with the rise of Netflix over the past decade. But in recent months, streaming subscriptions have dried up.
As the US market matures, it has become more difficult and costly to attract even a small number of new customers. With over 100 streaming services to choose from, a heavy investment is simply necessary so as not to lose existing subscribers.
“It was really easy to add subscribers at the start of streaming, when it’s new and you have superfans,” said Rich Greenfield, partner at Lightshed consulting firm. “But when it starts to ripen, how do you really build this business? “
This dynamic was evident in the financial results of media companies in the third quarter, prompting questions from analysts about whether streaming is a good deal.
In the digital age, subscriber additions have become the main driver of market valuation for entertainment companies. These groups spend tens of billions of dollars to provide a constant stream of TV shows and movies to satisfy both the public and Wall Street.
Netflix is expected to spend $ 17 billion on content this year. In the third quarter alone, Netflix released 824 programming episodes, while streaming services HBO Max released just over 200 and Disney Plus about 150, according to research firm MoffettNathanson.
“Truly revolutionary content like Squid game Where The Queen’s Gambit . . . is the outcrop of Netflix’s willingness and ability to spend, baby, spend on new content, ”said Michael Nathanson, media analyst. “These dynamics create a toxic mix of increasing capital intensity and [return on investment]. “
Total streaming video subscriptions in the United States reached 241 million in March, according to Kantar estimates. Greenfield believes there are “at least” 25 million more US subscribers to be found. But to capture them, media groups need to do everything possible by offering their most popular programming on streaming, not on traditional television.
“It is now a business decision for traditional media. How much do they want to cannibalize their profitable cinema, cable and television companies to earn streaming? Greenfield said. “The single person is on ABC [a Disney-owned TV channel]. Why is it The single personnot exclusively on Disney Plus? “
Last month, Netflix told the FT it was on track to deliver a “steady pace” of programming until the end of 2022, after production delays due to the pandemic left the company lighter. than expected in the broadcasts at the start of the year.
“We are in uncharted territory,” Co-Managing Director Reed Hastings told investors last month. “We have so much content to come [in the fourth quarter], like we’ve never had.
But in the United States, it’s not clear how far that will move the needle. So far this year, Netflix has added just 88,000 subscribers in the US and Canada, up from 6 million in 2020 and 3 million in 2019.
With 74 million subscribers in the United States and Canada, Netflix can be content to just maintain that base. But new competitors need to add subscribers to make their heavy investments worth it.
Disney added just 2 million subscribers to its flagship streaming service worldwide in the third quarter, he reported on Wednesday, a sharp slowdown from the 12 million, 9 million and 21 million registered in the last few months. three previous quarters. Shares fell more than 4 percent on earnings.
WarnerMedia’s HBO Max reported a similar slowdown in the quarter, enrolling 570,000 Americans, up from 2.4 million and 2.8 million in the previous two quarters. The company told the FT that the slowdown was “due to the timing of new content,” but growth is expected to accelerate in the fourth quarter with the return of Succession, Calm your enthusiasm, and Sex and the city , and films such as Dunewhich aired on HBO Max.
In the same quarter, Comcast didn’t even provide an update on signups at Peacock, the streaming service owned by its NBCUniversal division.
“North America remains heavily saturated, especially with the influx of new streamers,” said Paolo Pescatore, analyst at PP Foresight. “There are too many services for too few dollars. “
This is important because American subscribers pay more money than their counterparts in Asia or Latin America. About half of the 4.4 million subscribers added by Netflix in the third quarter were from Asia, where the average price people pay is $ 9.60 per month, compared to $ 14.68 in the United States.
Disney’s divergence is more extreme, as the company has captured tens of millions of subscribers to its Hotstar-branded service in India. The average Disney Plus subscriber pays only $ 4.12 per month.
ViacomCBS last week warned that its streaming spending would increase by $ 350 million this quarter, which MoffettNathanson said will reduce the company’s operating profit by more than 40% from a year ago.
“We believe we are on the cusp of a shift in investor thinking,” Nathanson said. “This is not a business for the faint of heart, the short-term, or those constrained by non-ethereal concerns like free cash flow or net debt. ”