Netflix says Disney had nothing to do with its underwhelming quarter

Bloody, but unbowed.
Bloody, but unbowed.
Image: Netflix
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Following a record-breaking 2020, Netflix’s subscription growth has slowed dramatically so far this year. The company says that has everything to do with the Covid-19 pandemic, and nothing to do with increased streaming competition from the likes of Disney.

Netflix added just 4 million new subscribers in the first quarter of 2021 (pdf), well short of the 6 million that both Wall Street and the company itself expected, Netflix said as it reported its earnings yesterday. Over the same period last year, Netflix added a record 15.8 million global subscribers, which it attributed to home confinement during the early stages of the pandemic. The service now boasts more than 200 million members around the world.

But most Netflix subscribers are less confined at home than they were at this time last year. And many of those whom Netflix hoped would someday sign up already did so in 2020. The company cited that “pull-forward” effect for the disappointing quarter, arguing 2020 stole what would have been 2021’s customers. Netflix also blamed Covid-related production delays for causing a “lighter” than usual (read: less compelling) content slate, which contributed to the relative lack of new subscribers.

What Netflix did not blame for the slowdown was Disney—or any other competitor.

Competition? What competition

“We don’t believe competitive intensity materially changed in the quarter or was a material factor in the variance,” the company wrote in a letter to shareholders. Its proof was that the big subscriber miss happened across all regions—even in places where Netflix isn’t (yet) competing with Disney’s streaming platform, Disney+, or WarnerMedia’s HBO Max.

Netflix downplayed Disney as a serious competitor altogether. On the company’s earnings call, Reed Hastings, its co-CEO, said linear, or traditional, TV remains Netflix’s biggest competition, followed by YouTube. Ranking somewhere far behind that is Disney+. And in something of a change from previous earnings reports, Netflix did not mention Disney by name in the section on competition in the shareholder letter.

Hastings added that, outside of China, the number of households paying for regular TV peaked at 800 million. Netflix thinks that’s how big its market is, even with Disney and other deep-pocketed companies joining the global streaming party. Disney+ already has over 100 million subscribers less than a year-and-a-half after launching, but Netflix was quick to point out it’s unclear how many of those joined the service through “bundles, discounts, and other promotions.” (Netflix also offers promotions to certain customers.)

Netflix could very well be correct that the competition played no role in its subscription slowdown. But there is some evidence the increase of viable challengers is cutting into the company’s dominant market share. Parrot Analytics, a research firm that measures streaming demand, reported this month that Netflix’s share of global demand for original streaming content shrunk from 65% in 2019 to 50% today. The glut of other options could partially explain why consumers are in no rush to sign up for Netflix at times when its slate of new originals is lackluster.

The company expects the pull-forward effect will subside in the second half of 2021, when “a large number of returning franchises” like The Witcher and Money Heist are scheduled to hit the streaming service. So it’s possible the weak earnings is a mere blip on what will be another strong year for the world’s most popular streaming service. But it could also be an early sign that Netflix’s once-unbreakable grip on the streaming marketplace is beginning to loosen.