In a Horrible 2022 for Streamers, Netflix Still Victorious — for Now    

Cheyne Gateley/VIP+

Asking who won the streaming game in 2022 is not unlike asking who won the box office in pandemic-scarred 2020. No one in streaming truly “won” this past year, during which Wall Street turned on the business model it had driven all of Hollywood to chase and wiped out more than $500 billion in market value for the major media companies due in no small part to their massive streaming losses.

Furthermore, given the headwinds still facing the business heading into 2023, the title of 2022’s “winner” is a fleeting victory at best. The year ahead is certain to see continued turbulence for the streaming space, as the major players struggle to adapt to ongoing macro challenges and the market’s new hostility to the direct-to-consumer business.

But with that hefty disclaimer out of the way, it is still possible to declare a leader of the streaming pack. For in spite of its own historic annus horribilis, longtime champ Netflix is still on top of the heap for the moment.

Yes, in many ways, Netflix had a very bad year, illuminating plenty of challenges it will face going forward. There is little doubt Netflix will need to evolve its strategy to continue as the dominant player in the long term, as some Wall Street analysts have pointed out despite renewed market bullishness on the streamer’s stock.

“We see NFLX at a competitive disadvantage…because it doesn’t own a bundle to lower churn in the U.S., and it has largely saturated its offshore [total addressable market] already,” a recent research note from Needham & Co. argues. “By implication, we expect NFLX to lose subs to competitors, and would approach NFLX shares with caution.”

Nevertheless, Netflix’s many advantages over its fellow streaming-war combatants have not yet been wiped out.

To begin with, it can’t be ignored that Netflix is still producing hits — and lots of them. By all available metrics, “Stranger Things” Season 4 was the TV smash of the year (even if the chattering classes were more obsessed with HBO’s “The White Lotus”), with the sci-fi series dominating Netflix’s and Nielsen’s viewership top 10 charts for months.

But as Netflix execs are keen to note, the streamer managed to produce a steady, ahem, stream of hits throughout 2022: Q1 brought “Inventing Anna,” along with new installments of “Ozark” and “Bridgerton”; Q2 saw “Ozark” close out its run and “Stranger Things 4” arrive with great fanfare; in Q3, Netflix’s investment in Ryan Murphy finally paid off with “Dahmer: Monster,” which was followed quickly by another Murphy hit, “The Watcher,” in Q4; and November release “Wednesday” racked up a billion hours watched in just three weeks.

Almost all of those titles rank among the most watched English-language TV seasons in Netflix history, with the final run of “Ozark” just missing the top 10 due to the success of “Wednesday,” as the streamer’s head of U.S. and Canada scripted series Peter Friedlander recently pointed out to Variety.

Of course, those hits weren’t enough to stop Netflix from bleeding subscribers throughout the first half of the year, and their long-term value is debatable in terms of their potential to drive future growth and financial return. “Stranger Things 4” was one of the most expensive TV seasons ever produced, at $30 million per episode, while the rewards of “Dahmer” and “The Watcher” may not balance out the costs of Netflix’s massive overall deal with Murphy.

For the time being, however, Netflix content is still keeping audiences tuned in, and paying, at industry-leading rates.

A look at any given week for the Nielsen streaming charts — the closest thing available to an industry standard for streaming ratings — shows Netflix’s continued dominance over U.S. viewing, and Nielsen’s monthly report on time spent for streaming services consistently shows Netflix far ahead of its SVOD and AVOD competitors, with its shares of viewing time rivaled only by YouTube’s.

Meanwhile, despite the increases in churn Netflix has seen over the past year, its churn rate has remained the lowest among U.S.-based SVOD services, outmatched only by the package deal of the Disney Bundle (Disney+, Hulu and ESPN+, all of which have higher individual churn rates).

Netflix also still boasts the largest subscriber base of any streaming service and, more significantly, the highest average revenue per user in both the domestic and international spheres. With Disney in particular still struggling to effectively monetize its subscribers, this advantage is not to be discounted heading into 2023. Netflix’s new ad-supported tier, though off to a slow start, is still expected to further boost ARPU in the months and years ahead.

Indeed, Netflix’s overall financial picture remains in far better shape than its rivals’ DTC operations. It is still the only company to turn a profit in streaming, having taken full advantage of its decade-long head start to build scale, and finally turned free-cash-flow positive in 2022 despite its subscriber struggles. The company’s 2022 revenues (year-to-date through Q3, as its Q4 numbers have yet to be disclosed) also outstripped the DTC earnings of its closest competitor, Disney, by nearly 60 percent.

In short, Netflix is still outperforming its rivals in all of the key metrics used to measure success in streaming, which helps explain why its share price, though still down 50 percent year-to-date, remains far and away the highest among streaming combatants.

The company’s potential pitfalls should, however, be kept in mind moving into the new year. As the most mature streaming service, Netflix’s future growth potential is limited, and its pure-play business model makes it especially vulnerable to the market’s whims regarding streaming (though it has also shielded Netflix from the brutal headwinds in the linear TV business).

Netflix’s competitors have also arguably improved upon its model for streaming in several ways, from returning to weekly release strategies for series to embracing additional revenue-generating opportunities for streaming content, as Warner Bros. Discovery is now doing aggressively.

Still, none of this has helped any other company pull ahead of Netflix in the streaming game just yet. With Wall Street now demanding profitability from streamers, there is a long uphill battle to come that will likely eliminate more than one major player from the game. Netflix may not seem destined to win the war, but reports of its death have been greatly exaggerated.