Netflix: The Content King

Netflix, the prolific streaming service that was once known only by their abundant variety of content, is now one of the worlds most successful content producers. With over US$20.0 billion in annual revenue in 2019, the Netflix brand has continued to surpass expectations, taking only 22 years to reach this milestone. As the streaming industry continues to explode with competition from Disney+ to Prime video, how much longer can Netflix continue to dominate the streaming industry?

In 2020 alone, Netflix is looking to increase their programming budget to upwards of US$19.0 billion; a 20.0% increase from 2019. Recording a whopping 34 golden globe nominations and 24 academy award nominations, it’s clear that Netflix shows are beginning to really impress the film industry. With Netflix’s previous focus on original TV shows like The Crown, the new transition into a movie oriented focus is a clear element of Netflix’s growth strategy. In 2019 alone, Netflix released 55 original movies, more than 3 times the traditional Hollywood studio.

Netflix’s current movie budget is massive compared to any of it’s direct competitors. The movie budget’s for streaming services such as Amazon, Apple TV, and Disney+ combined are only $17 billion, $2 billion dollars less than Netflix alone. This massive discrepancy between competitors demonstrates the clear lead that Netflix still holds in the streaming industry and how much they’re willing to invest to maintain that lead.

Despite these positive strides and strong leadership, the growth in these competitors and the powerhouse companies behind them is nothing to scoff at. Although Netflix’s market cap of $US154.0 billion is impressive, Netflix is nothing compared to the trillion dollar wallets of it’s direct competitors. Regardless of the current standings, Netflix CEO Reed Hasting’s statement that there is, “ample room for many services to grow,” may be too optimistic. Many of these new streaming services, more notably that of Disney+, are only in their infancy. Although the target market of these services are considerably different, it’s still unclear what direction Disney plans to take their future production.

In the final quarter of 2019, Netflix only added 420,000 subscribers to their service, 180,000 short from their previous 2018 expectations. Compare this 420,000 figure to Netflix’s fourth quarter in 2018, they brought on roughly one million less subscribers; a substantial difference. Given this substantial reduction in US and Canadian growth, Netflix has recently begun trying to tap more into the international market with reduced pricing and promotional offerings. Although these subscriptions don’t bring in nearly as much revenue as North America, entering these markets is crucial for Netflix’s long term sustainability. Last July, Netflix released a mobile-only Netflix at roughly US$2.80 a month in India. This strategy is unlikely to bring any large profits short-term for Netflix, it’s expected they will slowly increase their prices over time to reach profitability.

While most of the U.S., Canada, and Europe sit around a 90% internet penetration rate, Asia is still substantially behind with only 55% of the their population of 4.3 billion without internet. As these countries grow their middle class, developing into these areas early could mean massive long-term growth for Netflix.

Overall, Netflix is clearly making massive strides to remain at the top of the streaming industry. With clear growth opportunities in their original content, global expansion and blockbuster focus, Netflix is definitely not to be underestimated when it comes to defying growth estimates. However, with the strong competition increasing, the growth in North American subscribers slowing, and the overall cost of production skyrocketing, whether Netflix can sustain such a model is uncertain.

Photo by Charles on Unsplash

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