Is Netflix Running Out Of Content?

The past twelve months won’t be looked back on with any fondness by most of the world’s population. However, they might be looked back on with a great deal of affection by Netflix and anyone who owns shares in the company. With most of the planet locked down and people denied their usual forms of entertainment, Netflix (and services like it) became the place that we all go to for something to pass the time. Almost every new show or movie released on the streaming service in the past twelve months became a major cultural event. If you’re in any doubt of that, think about the way the world went crazy for Tiger King.

Unfortunately for Netflix, there are only so many television shows and movies in the world, and customers have burned through most of them at a record pace. Even for a company with the resources of Netflix, it’s difficult to create new content during a pandemic. Studios have been closed. Social distancing has had to be enforced on film sets. Some productions have been delayed extensively, and others have had to be shut down entirely. We’ve seen that with the release schedule of major movies over the past twelve months, and the problem has finally come around to bite Netflix in the behind, too.

Netflix is the undisputed (non-Tiger) king of the streaming services. It has the most subscribers and arguably the best content. It’s successfully managed to turn entertainment into the televisual equivalent of an online slots website. It may even have been designed with the same principles in mind. The reason that online slots websites have been so successful is they take as many slots as possible and put them in the same place, with only one password and username required to access them. Once in, a player can play any online game of their choosing. Netflix does the same with entertainment products. It’s a combination of convenience and content that people are willing to pay for. If, though, New Zealand stopped adding new online slots, it would eventually start to lose customers. Through circumstances beyond its control, Netflix is struggling to add new content, and the risk of customer loss is real.

While we’re a very long way from seeing Netflix in financial jeopardy, the markets don’t like the company’s current performance. The company hoped to add six million new subscribers in the first quarter of 2021. Instead, it added just under four million. That’s still significant growth. It could even be considered surprising growth given the fact that there’s a finite number of people who want Netflix subscriptions but don’t currently have one. However, it wasn’t what the company had advertised to investors, and so the markets reacted accordingly. No sooner had Netflix announced that the company had missed its new subscriber target, shares in the company fell by eleven per cent. The company’s value fell by $25bn.

There are two things to process with this news. The first is that Netflix can comfortably afford to lose $25bn from its market value without even a wobble, which tells us how enormous its true value is. The second is that even a small disappointment causes investors to lose confidence in a significant way. A dip is always expected when a company fails to meet a key performance objective, but eleven per cent is a lot. Markets are nervous at the moment because of the general global financial situation, but Netflix executives probably weren’t braced for such a sharp and negative response. They might now pause to reflect on whether they aimed too high with their initial projections. If so, they’re extremely unlikely to repeat that mistake in the future.

Off the back of this (relatively) bad news, Netflix has adjusted its expectations for the year ahead. At the start of 2021, the company projected an additional five million subscribers signing up during the second quarter of the year. That figure has been adjusted to a far more conservative one million. That could be Netflix protecting itself from a second sharp shock in three months’ time, but it also reveals the company’s mindset. It knows it will only continue to grow if it has excellent programming and new content for paying customers. For the numbers to be reduced in the way that they have, they must not be confident in what they have in the pipeline. The world is opening for business again, and film crews are well on their way to returning to normal working conditions, but there will be a delay before anyone sees the fruits of their labour. The first few months of 2022 should be golden for Netflix in terms of having new things to show us. The rest of 2021 might not be so lucrative.

Even with new content coming, the years ahead will likely be harder for Netflix. They ran almost unopposed for several years before other companies realised how much money there is to be made in the streaming game. Amazon Prime took a chunk out of their market share when they entered the arena, and now every entertainment company in the world seems to be at it. Disney Plus has well over one hundred million subscribers already after barely a year of operation. That’s half of Netflix’s total, but the service is gaining ground all the time. HBO, CBS, Paramount, and several other TV giants either have or are planning to launch streaming platforms of their own. The public is happy to pay for subscriptions so long as they’re interested in the content they get in return, but there’s an upper limit to the number of subscriptions they’re willing to have at any one time. Netflix will have to work twice as hard as it has in the past just to stand still.

It’s not all bad news. There are new seasons of “The Witcher” and “You” on their way for the second half of 2021, and three new seasons of surprise hit “Bridgerton” in production, too. They’re bound to attract new subscribers and might also appeal to people who’ve had subscriptions in the past but allowed them to lapse. Netflix’s ten-year trend of consistent growth is at an end, though, and it may never grow as quickly again. In fact, this might be as big as the company ever gets.

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