Is Netflix Resting on Its Laurels in the Streaming War?

A max exodus of third-party content from their platform could cause irrevocable damage

Photo: Emmanuele Contini/NurPhoto/Getty

With Apple TV+ and Disney+ both rolling out this month, Netflix may not be fully prepared for its ongoing streaming war to escalate. In a letter to shareholders on October 16, Netflix shared its Q3 earnings and maintained the following regarding the looming competition from upcoming players in the streaming service market:

The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV. While the new competitors have some great titles (especially catalog titles), none have the variety, diversity, and quality of new original programming that we are producing around the world.

They also addressed an expectation of continued growth as “linear TV” viewers shift from their single cable subscriptions to multiple streaming service subscriptions:

We believe this is due to the big factor of streaming growing into linear TV plus the fact that streaming video services have mostly exclusive content libraries that make them highly differentiated from one another. In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment.

While Netflix’s performance outlined in the Q3 earnings report is undeniably strong, their implication that customers will be drawn to the “variety, diversity, and quality” of their “highly differentiated” content offerings over rival services isn’t as clean-cut as they make it sound. Most cable-cutters haven’t canceled their cable subscriptions out of a desire to go from spending money on cable to spending the same amount (or more) on several different streaming services.

What will likely become commonplace is that consumers will end up foregoing specific services based on which ones have the weakest catalogs. It’s important for Netflix (and other streaming services) to be realistic: Nobody can watch every show. The more appealing the catalog being offered by Disney+, Apple TV+, or other competing streaming services, the more room there is to leave Netflix behind. Conversely, some consumers will choose to forego other services in order to stick with or subscribe to Netflix.

Another likely possibility is consumers could begin leap-frogging from service to service over time. For example, they may subscribe to Netflix and Hulu in June and July to binge-watch specific shows, only to cancel them from August to September to subscribe to alternate streaming services. Unless Netflix changes up its standard of dropping entire seasons at once, it may be difficult to maintain its subscriber-base for more than a month or two at a time. Without consistent flows of income, it could become more difficult to forecast future earnings.

The more appealing the catalog being offered by Disney+, AppleTV+, or other competing streaming services, the more room there is to leave Netflix behind.

Many major entertainment networks have begun rolling out their own services as well (Peacock by NBCUniversal, CBS All Access, and HBO Max by WarnerMedia). The more established these network-owned streaming services become, the higher the likelihood they will pull more of their content from Netflix’s catalog to attract viewers to their own.

Long-term, this would make it necessary for Netflix to support its growth and revenue predominantly on the basis of its original programming. Historically, Netflix has been able to rely on the wide catalog of TV shows and movies it has built up since entering the online video on demand (VOD) market in 2007. It’s difficult to predict how it might survive in the midst of a max exodus of third-party content from its platform.

With Disney holding 67% equity and full control of Hulu (with Comcast operating as a silent partner), it may not suffer the same challenges services like Netflix, Amazon Prime Video, and even Apple TV+ might. Between acquiring 21st Century Fox earlier this year, owning ABC, ESPN, Freeform, and National Geographic, and being at the helm of Walt Disney Studios, Pixar, Lucasfilm, and Marvel Studios, Disney certainly seems to have built up strong barracks in preparation for the streaming war.

While Netflix is hopeful the decrease in linear TV cable subscriptions will lead to continued growth and revenue on its part, if those consumers are entering crowded markets and have no preexisting brand loyalty to Netflix, it’s likely they will turn instead to the brands they are already familiar with (e.g. Disney, other major-network owned streaming services, Amazon Prime Video, and even Apple TV+).

Over the next five to 10 years, it will be interesting to see who makes it out alive, who acquires whom, and who is ultimately left sitting on the Iron Throne of the great streaming empire. If I were a betting man, my money unfortunately would not be on Netflix.

You may be reading my books someday.

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