✔️ 2022-04-20 09:00:00 – Paris/France.
Reed Hastings, co-CEO of Netflix, attends the Milken Institute Global Conference on October 18, 2021 in Beverly Hills, California.
Patrick T. Fallon | AFP | Getty Images
We have to live upside down. Legacy media disrupted Netflix.
Netflix announced on Tuesday that it was investigating adding a low-cost advertising-based tier to its service. The move put the world's largest video streaming service in a unique position to follow the lead of traditional media.
Hulu, owned by Comcast and Disney, is the founding father of the Streaming funded by advertising. In recent years, the main services of Streaming from Warner Bros. Discovery (HBO Max and Discovery+), NBCUniversal's Peacock, and Paramount Global's Paramount+ all launched with ad-based tiers at a lower price than their ad-free products. Disney said last month that Disney+ would offer an ad-supported product.
The legacy media industry has spent the last four years reshaping its business to compete Netflix. All the legacy media have decided that the model of Streaming only from Netflix was the future of entertainment consumption. companies have seen Netflix trading at sky-high multiples, causing the share price to soar regardless of how much content is spent.
The result was a group of huge companies that focused on directly competing with Netflix instead of protecting the pay-TV package, long the crown jewel of the industry.
In the world of Streaming, Netflix looks like the incumbent – struggling with saturation and an aging basic service. This may not be good news for entertainment companies struggling to gain market share.
The optimistic goal of traditional media companies has been to achieve the same kind of trading multiples as Netflix – an “everyone wins” scenario. But, at least for now, it looks like entertainment rivals have shot down Netflix, which acknowledged in its first-quarter earnings update that growing competition has led to slower growth.
The actions of Netflix fell more than 35% on Wednesday, dragging its market capitalization to $100 billion for the first time since 2018.
When a company trades on subscriber earnings, like Netflix, it is inevitable that the music will eventually stop. No company can sustain subscriber growth indefinitely. Saturation sets in.
This seems to have happened for Netflix, which lost subscribers for the first time in more than 10 years during the first quarter and forecasts another loss of 2 million subscribers during the second quarter.
The situation is so serious, at first glance, that the financial director of Netflix, Spencer Neumann, stepped in just before the end of the company's earnings conference call on Tuesday to reassure investors that Netflix will still be on the rise in terms of subscribers for the full year. — a telling consolation considering that most analysts expected Netflix adds nearly 20 million net subscribers in 2022.
“There will be growth in paid net adds,” Neumann said. “I just want to make sure it's understood. »
And now?
Un Netflix shrinking isn't good for Hollywood, which has benefited not only from the streamer's willingness to spend, but also from its competitors' arms race.
A version of Netflix which has to cut spending because it no longer has an inflated market value forces the whole industry to figure out what to do next. Yes Netflix embraces ads after years of resistance, will the company move into live sports next?
Co-CEO Ted Sarandos said he didn't see a profitable path to the sport during Tuesday's conference call, but Netflix seems to be making a habit of changing long held beliefs. Netflix ignored password sharing for many years – and now that's changing too.
Si Netflix looks and acts like every other entertainment company, it's also preparing to be disrupted. It's unclear whether gaming, which the company has repeatedly touted as an area of innovation, will be enough to separate Netflix of the peloton.
The industry now seems much more unstable than it did a year ago, when "trading like Netflix was actually a goal. There is rampant speculation that the wars of Streaming will lead to greater consolidation, but it is not clear that regulators would allow such deals.
Media companies could have rallied behind the protection of the pay-TV package, but they risked ceding the future to Netflix and other tech giants. Whether that decision is right or not, this ship has sailed.
And follow Netflix Streaming did not lead to the multiple expansion that the legacy companies hoped for. While Netflix falls, its newly defined peers do too. Paramount Global fell more than 8% on Wednesday. Warner Bros. Discovery fell more than 6%. Disney fell 5,6%.
Legacy media may have brought down Netflix in a certain way. But in doing so, it created an existential crisis for the entire entertainment industry. What shall we do now?
LOOK: Netflix Didn't Monetize 500 Million Viewers, Says Jim Cramer
Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC.
SOURCE: Reviews News
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