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The increase in the number of subscribers is considered the most significant predictor of the company’s revenues and profits. Although the number of subscribers in the quarter increased by 8.28 million people to 222 million, a significant slowdown compared to an increase of 8.5 million subscribers in the corresponding quarter. However, for the current quarter Netflix expects an increase of only 2.5 million subscribers, compared to 3.98 million subscribers added in the first quarter of 2021. And that has been enough to send Netflix to the sharpest daily decline since 2012, followed by other streaming market players like Roku, Viacom, CBS and Disney Who lost about 7% of their value, each.
There are two main reasons for the increase in the number of subscribers. First, the big boost Netflix received during the Corona era is starting to lose ground. In 2020, the year of restrictions and closures, Netflix enjoyed significant growth beyond forecasts, a result of a situation where people stay home and climb the walls. Growth also gave the company momentum for 2021, which was relatively free of locksmiths, although there were already signs of a slowdown. Although 2022 is underway in the midst of the Omicorn wave, it is a confrontation of a different nature, one that is not accompanied by closures and restrictions as in the past. The corona booster that is starting to weaken, and stabilizing on a routine without closures provide an expected slowdown in the increase in the number of subscribers. The second, and more significant, reason is the growing competition in the streaming market. Netflix started 2020 as the only significant player in the global arena. Disney + was already in the field, but only available in the US. Apple TV + was available worldwide, but did not excite with a mostly symbolic selection of content. And Amazon Prime Video was already a long-standing and well-known threat.
Two years later, the market is completely different. Disney + in constant global expansion when at any given time at least one series is broadcast on the service that becomes a cultural phenomenon. Apple TV + is getting better and manages to issue more talked about series than ever before, with an emphasis on Ted Lasso winning Emmy Awards. And other younger players – Peacock, HBO Max and Paramount + – manage to bring talked-about and popular series and become a legitimate competitor on Netflix. Paramount +, for example, is expected to air new episodes of its popular Star Trek series every week in 2022, and in preparation for its international expansion it has canceled its contract with Netflix as a Star Trek distributor outside the US: Discovery.
Netflix is still the top player in the market, showing that the production strategy as much as you can may provide a lot of tin content, but also regularly manages to issue popular and well-publicized titles such as The Squid Games or Do Not Look Up. However, it is no longer the only one on the market. There are many other options and many talked about series that come from equally determined competitors. And the slices of the subscription cake are now much thinner and much less satisfying. This is not to say that Netflix is in existential danger. She is still the leading player in the race and will remain so in the foreseeable future. But even a leading player in a race will run slower when competitors tie weights to his legs. Netflix is now running slower, and investors fleeing the stock are realizing it.
The situation is not fixed – the market probably can not hold so many streaming entities over time, especially given the massive investment in content. There will probably be some that will fall into space or merge, and after that happens Netflix will lose some of the weights and gain back some of the speed. But until then? The company’s stock will pay.