Have we seen the ceiling for high-end streaming?
Whether Netflix’s subscriber growth slowdown at the 222 million mark portends things to come for other major streamers is one of the biggest unknowns fueling media stock volatility. Hollywood has staked its hopes for growth over the past few years on drawing subscribers from the global market thanks to streaming’s ability to reach beyond geographic borders.
Indeed, the mere suggestion that Netflix’s subscriber base may plateau at around a quarter-billion subs — after the company invested more than $87 billion in content since 2013 — contributed to Wall Street’s latest wave of sell-offs in the media and tech sector. The emerging 250 million benchmark is vastly different from lofty projections that broad-based services would steadily add customers from the growing pool of more than 1 billion broadband-equipped pay TV households worldwide.
“The long-term total addressable market hasn’t changed … but with economic weakness, it looks like it’s going to take longer to get to a billion subscribers. The pace may be slower,” Rich Greenfield, partner and analyst at LightShed Partners, tells Variety.
Greenfield has championed the ascendancy of the direct-to-consumer model as linear TV viewing has steadily gone south. Netflix seemed invincible just a few months ago, with “Squid Game” and “Bridgerton” raking in billions of views and “The Crown” scooping up Emmy Awards, demonstrating a level of critical and commercial success that justified debt fueled spending on shows in the pursuit of ever more market share.
Now, it’s clear that growing pains are ahead.
“Investors have soured on direct-to-consumer streaming as losses pile up, while Netflix’s dramatic slowdown in the past six months has undermined the idea of achieving the necessary scale to drive robust profitability,” Greenfield says.
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Disney, meanwhile, has affirmed its previous guidance of Disney+ hitting 230 million-260 million subscribers by September 2024. But even after delivering solid subscriber gains for the first three months of the year, Disney also did not raise its longterm total subscriber target.
In this environment, ambitious game plans for building direct-to-consumer platforms at Disney, Warner Bros. Discovery, Paramount and NBCUniversal may be hastily adjusted, particularly if the U.S. moves into a recession, as widely predicted.
There is growing evidence that the high-end subscription streaming market in the U.S. is already saturated: More than 90% of Americans say there are “enough” or “too many” streaming services, according to a recent survey by Boston Consulting Group. U.S. households report having an average of 3.7 subscription VOD services, compared with 3.1 in 2021 — with nearly all of that coming from newer entrants like HBO Max, Apple TV+, Peacock, Paramount+ and Discovery+, the BCG survey found.
A particularly concerning metric for Netflix: Cancellations among long-term subscribers (who have paid for the service for more than three years) accelerated to 13% in the first quarter, up from 10% a year prior, according to research and analytics firm Antenna, based on its panel of 5 million U.S. streaming users.
Despite Netflix’s woes, worries about streamers falling off a cliff have been overblown, analysts say.
“I think it’s a speed bump — it’s certainly not the end of the runway for streamers,” says Colin Dixon, chief analyst and founder of nScreenMedia. “Netflix was the early entrant to the market, so this day was going to come for them.”
Brendan Brady, Antenna’s lead analyst for media and entertainment, says consumer behavior over the rest of this year will be crucial for subscription-based services. The signals sent by the market gyrations of the past few months are not encouraging for the short term.
“We’re heading toward a recession,” Brady says. “We’ll see consumers pull back on discretionary spending — which is not going to bode well for SVOD services.”