Four years ago, Netflix faced a massive challenge to its dominance. Competitors, including Walt Disney Co., have invested. and Warner Bros. Discovery, billions of dollars to capitalize on Netflix's market share by launching blockbuster shows on their streaming services.
For a while, it seemed like Netflix was weak. The company lost subscribers for two straight quarters in 2022 despite massive spending, raising concerns that its growth has plateaued.
But recently the tide has turned. Netflix has managed to maintain its position as the leader in subscription streaming, with 260 million paid customers worldwide, far more than its direct competitors. Netflix added more than 13 million subscribers during the fourth quarter. Shares of the Los Gatos, Calif.-based company have risen nearly 90% over the past year.
As a result, many analysts have made bold announcements in recent months. They say that the so-called streaming wars are over. Netflix won. As evidence, they point to rival studios that are now licensing more of their shows to Netflix, including HBO's “Six Feet Under” and “Insecure,” after years of sticking to big action movies and popular shows for their own platforms.
“Their competitors are desperate to make money, and they are feeding this content to Netflix,” said Jeffrey Wlodarczak, CEO of Pivotal Research Group. “This is a win-win.”
For their part, Netflix executives seem more confident than ever, even as the company continues to make changes, including a recent shakeup in its movie business. There is much more room for Netflix to grow, Netflix CFO Spencer Newman said at a Morgan Stanley conference in San Francisco on Monday.
“We're just getting started,” Newman said. “Now we're small by any measure. Every way we look at it, we represent less than 10% of viewership in every country we operate in, and that's a very small slice of the pie.”
How has Netflix defended its fort when there are still so many streaming services vying for attention?
The streamer has cracked down on password sharing, offering a cheaper ad-supported plan for cost-conscious viewers. Additional restrictions on viewers who were borrowing Netflix accounts prompted people to buy their own subscriptions, helping the company increase net income to $938 million in the fourth quarter, compared to $55 million a year ago, while revenue rose 12.5% to $8.8 billion.
Since then, Hulu, Disney+, ESPN+, and Warner Bros. have all referenced it. Discovery's Max also indicated that it would tighten restrictions on password sharing.
Netflix has also diversified its content beyond scripted programming, adding more reality TV shows, non-English original programming, live TV, games and sports documentaries to its mix.
Netflix has expanded its sports-related content. In January, the streaming company announced it would become the exclusive host of WWE's weekly wrestling show “Raw” in 2025, which analysts say will help boost Netflix's advertising business and increase WWE's global reach outside the United States. “Raw” is the premier show on the web. USA Network, attracting 17.5 million unique viewers year-round, WWE and Netflix said.
“Giving it a new group of fans as well as serving existing fans who are either already Netflix subscribers, or coming, to me either way is a win,” said Brandon Rigg, Vice President of Nonfiction Series at Netflix. A press event in Hollywood in January. “The truth is we don't know how much bigger it can get. I think we're all really optimistic about it.”
An important factor in Netflix's progress is that it had a big start, entering the streaming arena in 2007, much earlier than many of its Hollywood competitors. It has set up production centers in various countries around the world, including South Korea, where Netflix has found success with a series of Korean dramas that can be dubbed into many different languages. The company has also built a robust platform with recommendations based on a user's past viewing habits, while promoting trailers and titles tailored to their tastes.
“They have built scale faster than anyone else, and that scale in turn leads to a shorter path for a new asset to become successful because they have a broader audience available to sample,” said Brandon Katz, industry strategist at Parrot Analytics. “They have done a very good job of maintaining their market-leading position in the live streaming industry, even as competition and industry macroeconomic factors have thrown them a lot of challenges.”
Meanwhile, Wall Street has begun attacking legacy media companies including Disney, Paramount and Warner Bros. Discovery, which have sacrificed traditional television and box office revenues to fuel their streaming ambitions. Stock market pressures have encouraged these companies to curb their spending on direct-to-consumer operations.
Even Walt Disney CEO Bob Iger acknowledged Netflix's technological prowess at a Morgan Stanley conference on Tuesday.
“We are now creating and developing all this technology, and obviously the gold standard there is Netflix,” Iger said.
“We need to be at their level in terms of technological capability.”
Disney+ has 111.3 million subscribers as of the first fiscal quarter (excluding Disney+ Hotstar). Warner Bros. includes Discovery added 97.7 million subscribers in its direct-to-consumer category, which includes Max, HBO, Discovery+ and premium sports products, in the fourth quarter.
Netflix also resolved some analyst concerns about its debt levels. In 2021, the company said it will no longer need to raise outside financing for its day-to-day operations.
While six-month strikes in Hollywood last year crippled film and TV production and cut back on studios' TV and movie schedules, Netflix appeared to be able to weather the disruption better than many competitors.
Striking writers and actors have raised concerns about streaming services, criticizing Netflix and others for not rewarding them financially enough when shows become hits. They demanded more data transparency and a significant increase in wages. Some people in the industry called last summer's worker strikes the “Netflix strike,” pointing to the changes the company promoted in how the entertainment industry operates. Several productions, including work on upcoming seasons of Stranger Things and Cobra Kai, have been delayed due to the work stoppage.
The Writers Guild of America and SAG-AFTRA were able to achieve many of their goals in their new contracts. However, Netflix continued to increase its subscriber base during the strikes. One title that gained traction on Netflix over the summer was the legal drama “Suits,” a USA Network-produced series that ran from 2011 to 2019 but gained a new surge of cultural relevance last year when it debuted on the service.
Overseas production has also helped, because it is usually less expensive than producing shows in the United States, analysts said.
“You can see how the content budget could get more bang for its buck if they could actually produce 'The Squid Game' every year here in America,” Katz said. “The more they can get some of the South Korean shows, the Indian shows, the Spanish-language shows, to kind of show up on the charts here in America, the longer their dollar lasts, the less they're going to rely on more. American-made series are expensive.”
Two years ago, Netflix's future was more uncertain, as it was going through a correction in the streaming industry. At the beginning of the pandemic, streaming companies, including Netflix, saw explosive growth as people sheltered at home and looked for ways to entertain themselves. But eventually subscriber growth slowed, with Netflix reporting a decline in customers in the first half of 2022. The hiccup was startling to investors, given the amounts the company was spending on content, and the stock tumbled.
Netflix has laid off hundreds of workers and begun investing in new business areas, including launching an ad-supported streaming plan, after years of aversion to commercials on its platform. It has acquired game studios and ramped up live-action offerings on Netflix with mixed results, including hosting this year's SAG Awards and, most recently, a series in which chef David Chang cooks for celebrities. It also holds live reality show interviews and exciting sporting events, including “The Netflix Slam” tennis match.
But as Netflix continues to expand its customer base, it will face continued competition for customers' time and money. Some analysts remain skeptical about the return on investment from the company's film strategy, which had a 70-film schedule in 2021 and included big-budget action films like “Red Notice.”
In January, Netflix announced that its director of films, Scott Stuber, would leave in mid-March to start his own media business. His position will be filled by Dan Lin, CEO of production company Rideback, starting in April.
But Netflix downplayed the idea that the company's approach to original film is changing. Newman said having original movies on its service is an important part of the entertainment Netflix provides and the value it offers its customers.
“The film industry has come a long way. It's a fantastic success for us,” Newman said at a Morgan Stanley conference on Monday. “With Dan, we're excited to move to the next level. Just like everything we do. “We're trying to keep improving, so we'll start from there.”
