Shares in Netflix were slightly down after a somewhat underwhelming forecast on Tuesday 16 April.
Apple and Disney are both set to make big plays for the streaming market this year but Netflix has insisted it is not spooked by the new competition.
The company predicted it would add five million new subscribers in the April to June quarter. An industry survey by FactSet had pegged this figure at 5.48 million.
In a message to its shareholders, Netflix conceded the most recent quarter saw “some modest short-term churn effect” after it had raised subscription prices in some territories.
Is Netflix approaching a plateau for subscription numbers?
In the January to March quarter, it added 7.86 million new subscribers worldwide, setting a new record. That number took its total tally of paid subscribers internationally to 148.86 million.
“We don’t anticipate that these new entrants will materially affect our growth,” Netflix CEO Reed Hastings said, adding that the two incoming services would offer very different content and noting that the “transition from linear to on-demand entertainment is so massive.”
Disney, Apple and Netflix will have no shortage of resources in their looming battle. They have a combined market cap of around US$2.2 trillion.
Despite the confidence expressed by Netflix, Disney looms as a formidable competitor in the streaming space. It has signaled an intent to engage in vigorous price-based competition with a US$6.99 a month subscription fee to undercut Netflix’s rate of US$13 across the US.
Disney also has deep pockets and one of the most valuable stashes of intellectual property of any company, including the stables of Marvel, Pixar and Lucasfilm. It had previously sold content to Netflix but has since withdrawn from these arrangements to platform its own films and series. It is targeting 12 million subscribers by 2024.
Apple has been more secretive about its streaming service and has not released pricing details. In March, CEO Tim Cook offered some details on how it would tie in with Apple TV.
The tech giant has also spent big on content creation, splashing out for the likes of Oprah Winfrey, La La Land director Damien Chazelle, Reece Witherspoon and Jennifer Aniston.
With 148 million subscribers and a value of $157 billion, Netflix is the leader in streaming. But Hulu, now controlled by Disney, has something Netflix doesn’t: ads. And they are worth a lot. https://t.co/o1vU0KRBdp
— The New York Times (@nytimes) April 17, 2019
Netflix spending big to retain its market lead
Despite significant barriers to entry, industry titans are lining up to get into streaming. AT&T made the massive acquisition of Time Warner (later renamed Warner Media) with an eye to launching its own service in late 2019.
Yet another entertainment conglomerate, NBCUniversal, also has plans to enter the market next year. That service will be based on a different business model, functioning as a free service supported by advertising revenue.
Netflix has been throwing resources into content development in an apparent bid to shore up its healthy market share. It devoted US$12 billion to content in 2018 and BMO Capital Markets analyst Daniel Salmon said it could spend US$15 billion this year and up to US$17.8 billion by 2020.
This strategy has resulted in a tripling of debt in just two years, from US$3.36 billion in 2016 to US$10.36 billion in 2018.
The company’s revenue rose slightly higher than anticipated, coming in at US$4.52 billion. Industry analysts had been forecasting revenue of US$4.5 billion on average.
Netflix remains easily the largest streaming service by subscription numbers, ahead of Amazon Prime and Hulu.