End of an Era? Netflix Seeing a Decline as It Loses Quality Content

Netflix recently said “goodbye” to the hit show Friends, but this is only the beginning.

The world’s most popular video streaming service is going to be losing a significant amount of its licensed content, which makes up about 63% of its catalogue . And while it may have a lot of original content on its hands, there have also been announcements of multiple new streaming services.

That could spell bad news for this tech stock.

Disney and NBC to Launch their Own Streaming Services

Disney is about to launch its own highly publicized streaming service, as well as NBC. These take with them shows like Grey’s Anatomy and The Office. As cord cutters become more common, cable companies are essentially recreating their channels online. The days of having a single service like Netflix may be over: many may start using multiple streaming services, instead.

This isn’t a problem that Netflix didn’t foresee. The company has pumped in a tremendous amount of money into its original content, such as the wildly popular series Stranger Things. But producing this content costs quite a lot of money: 85% of Netflix’s budget so far has been on original content, and new subscribers alone aren’t able to bring this money in.

Netflix needs to continue its aggressive growth if it’s going to survive, but without licensed shows, it may see many people canceling subscriptions. Licensed content such as The Office are often considered to be bread-and-butter shows: shows that many people subscribe for and want to watch regularly.

Disney is a particularly formidable opponent, as it recently absorbed much of Fox Entertainment’s content as well. Disney has already stated that it’s going to be bringing in a number of new Marvel shows. Marvel-based shows such as Netflix’s The Punisher, Luke Cage, and Jessica Jones have been discontinued, and Disney has announced shows such as Wandavision and Loki.

Short-Term vs. Long-Term Subscribers

49% of younger viewers have stated that they would cancel their subscription if Netflix loses its Disney and Marvel shows, as well as The Office and Friends. But some analysts aren’t overly concerned. Netflix has short-term subscribers and long-term subscribers. Long-term subscribers keep Netflix like a utility. Short-term subscribers just start their subscription for specific shows.

While over 60% of the content streamed on Netflix may be licensed shows, that doesn’t necessarily mean that it’s 60% of Netflix’s revenue. Netflix doesn’t get revenue from streaming time, because it doesn’t have ads. It only gets its revenue from its subscription fees, which have been going up over time. Even so, 49% of younger viewers is a tremendous demographic, and their most important one.

Netflix Feels Pressure from Lower-Priced Streaming

To compensate for its huge expenditures in custom content, Netflix has had to increase streaming prices several times. And that may be bad news for Netflix, because the services that are launching are likely to be lower priced.

Disney+ is launching at $6.99, and this only makes sense. Disney doesn’t need to invest additional funds in custom content: it’s already created the content and is simply making an additional revenue stream. It can also afford to eat the costs of trying to run its competition out of business.

While it’s not yet known how NBC will price it’s product, it’s easy to guess that it’s going to be at least competitive with Netflix. Other channels have also released popular streaming products, such as HBO Now. However, HBO Now has proven to be remarkably seasonal, with many people investing in HBO Now subscriptions only when shows are actively airing. Disney and NBC both have a tremendous backlog of content.

Netflix isn’t out of the game, and it’s been adapting and adopting its strategies for some time. But investors can likely look forward to the stock at least taking a dip, as the company will need to regain its footing after the launch of these new platforms, and the loss of much of its high quality content. The platform will likely need to pivot even more deeply into original content if it is to survive.

Regards,

Ethan Warrick
Editor
Wealth Authority


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