Will Netflix survive and co-exist with it’s new competition?

In its 2019 Q1 quarterly financial report Netflix identified 2 upcoming competitors Disney+ and Apple TV+. Disney’s service will be the biggest threat due to Disney’s partial monopoly over the film world and now the TV world with it’s recent purchase of 21st century FOX. Apple will still be a threat simply because they are such a massive company so they will have more money to invest into shows however I believe they will be hindered by their lack of experience in the industry. Other competitors are also on the way including an upcoming streaming service from warner brothers.

Netflix’s biggest challenge will be the removal of shows from its platform for competitors to make them exclusive on their own platforms. According to a recent business insider article many of Netflix’s most popular shows over the last year which made up a 21% share of their episode views in 2018 could potentially be removed from the streaming service due to being owned by competitors. Netflix paid $100 million to keep friends on the site throughout 2019. Friends and The Office which together made up over 10% of Netflix views in 2018 will leave for Warner Media’s and NBC’s streaming services respectively by 2021.

The Netflix of 2018 would have likely failed in the long term. However, by the 3rd to 9th of July 2019 50% of the top 10 most watched shows in the UK are Netflix original shows including stranger things season 3 which 40.7 million viewers watched in the first 4 days breaking Netflix’s own record. Netflix has realised that originals are key to its survival.

By 2021 there will be over 5 new streaming services however people simply won’t get them all partly because of price but also because of the hassle of having multiple accounts. Furthermore, people will get the service their friends have in order to watch similar shows. Therefore, I believe that that only a few services will survive long term.

Netflix already has a large user base, but I believe it will hold strong primarily due to its focus on originals. For example, Netflix spent 85% of it’s 2018 content budget on originals as opposed to spending it with competitors. Netflix’s 2018 content budget was $7 billion and earlier this year they offered $2 billion in bonds in order to fund more originals.

It should be considered that despite Disney having a large partial monopoly it is not total and there are several independent film and TV companies in existence that will probably be open to serving their content on multiple services. For example, Lionsgate which publishes Hunger Games and it’s other content on both Google’s service and Netflix’s.

Recently Netflix increased its top tariff to £11.99 in early 2019 which has gradually been increased since it was roughly £4.99 in 2011 when the DVD and Streaming services were split. At the time you could have bought almost 3 services (had they existed) for the price of Netflix today. Netflix is doing this to tackle its large debt and to put more into original content however I believe that these price increases mean people consider Netflix more of a premium service or ‘THE’ premium service and therefore make it less likely for them to buy a second service.

I believe that Netflix, Disney and Amazon will be the players in this space in the long term with apple joining them if it’s able to get used to the industry. I think that both Netflix and Disney will be able to coexist because they exist in a market with such huge potential for growth. Streaming time only accounts for 10% of total TV hours in the US. In addition, Netflix points out that in the short term these companies will not pose a threat because the transition from linear to on demand entertainment is so massive. In addition, Netflix offers a slightly different experience to say Disney which is more movie than TV focused. Overall the companies that can produce the best original content in order to form an economic moat will be the ones that can survive in this space. Therefore, I believe that both Netflix and Disney will do well in streaming in the long term due to their focus on original content.

Bibliography:

https://www.radiotimes.com/news/on-demand/2019-07-12/what-is-the-most-watched-films-and-tv-series-on-netflix/

https://s22.q4cdn.com/959853165/files/doc_financials/quarterly_reports/2019/q1/FINAL-Q1-19-Shareholder-Letter.pdf

https://www.businessinsider.com/popular-tv-shows-on-netflix-that-could-leave-2019-6?r=US&IR=T#2-friends-9

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