Netflix wants investors to know that they shouldn’t sweat the imminent arrival of streaming services from Disney, Apple, WarnerMedia, and NBCUniversal.
In its third-quarter earnings letter to shareholders (pdf)—its last before Disney+ and Apple TV+ launch next month—the company argued the rising tide of streaming lifts all boats. The only real loser, it declared, will be traditional TV, which will continue to bleed subscribers as more viewers cut the cord and sign up for a streaming services instead.
“In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on-demand consumption of entertainment,” the letter stated. “Just like the evolution from broadcast TV to cable, these once-in-a-generation changes are very large and open up big, new opportunities for many players.”
Is Netflix’s optimism warranted? Even before new competition enters the picture, the streamer’s two most recent quarters had been underwhelming. It added 6.8 million subscribers this quarter (analysts had expected about 7 million)—and that was a vast improvement over the previous quarter, when Netflix missed its subscriber mark by 2 million and actually lost subscribers in the United States for the first time:
While Netflix continues to grow its international subscriber base at a steady rate, its US growth has slowed considerably. Increased competition from the likes of Disney and Apple could grind that domestic growth to a halt.
But the company swears it isn’t worried. One reason is that all these new services will have very different content. “Streaming video services have mostly exclusive content libraries that make them highly differentiated from one another,” it said.
And in a thinly veiled dig at some of its new competitors’ offerings, Netflix argued that its library is still the best available. “While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.”
It’s probably true that Netflix has the biggest variety of original programming (it certainly spends the most), but its claim of having the best “quality” shows is dubious. HBO, which dominated every network (including Netflix) at the Emmys this year, has the better claim to quality content.
Netflix’s letter to shareholders neglected to mention that some of its most-watched shows will soon be leaving the service and going to these new competitors. The Office, which accounted for more than 7% of all Netflix viewing in 2018, will leave Netflix in 2020 and join NBCUniversal’s Peacock in 2021. Friends, close behind in second place at 4% of total viewing, is moving to HBO Max.
Combined, content produced by three of its biggest competitors—Disney, Comcast/NBCUniversal, and WarnerMedia—accounts for as much as 65% of Netflix viewing hours, Variety reported, citing estimates by Wedbush Securities analyst Michael Pachter. Over the coming years, those companies will pull much of that content off of Netflix and onto their own streaming services.
Netflix called the launch of these new services “noisy,” and admitted that there could be “some modest headwind” in the months ahead. But it’s not letting shareholders see it sweat. We’ll know soon enough whether or not that bluster was justified.