Netflix has long been among the big winners of the coronavirus era, net gaining 55 million subscribers in two years. But the American company has not been favored by investors for several months. The Netflix action thus lost more than 20% on Wall Street on January 21, sanctioned by a nervous market which attacks the fetish stocks of the pandemic, whose growth is now considered insufficient.
In question, the forecast announced on January 20 by the online video service, which expects a net increase of 2.5 million subscribers in the first quarter, which would constitute the most modest increase for the first three months of the year. year since 2010. In an interview with L’Express, Gilles Pezet, senior digital media consultant at NPA conseil, analyzes the various difficulties encountered by the streaming giant.
L’Express: Has the streaming giant reached its limits?
Gilles Pezet: Netflix announced results very slightly lower than its own forecasts. There is certainly a loosening in the stock market but it is the game of the markets. We are in a period of extreme market volatility, especially for tech companies, and Wall Street is on edge. It is now more difficult for Netflix to have stratospheric growth rates as the company has experienced before, but in the long term its strategy of gradually shifting the consumption of audiovisual content to streaming is validated.
Netflix has nearly 222 million subscribers worldwide and has identified a total potential of 800 to 900 million, excluding China where the situation is certainly blocked for a long time. The American giant therefore still has plenty of room for growth and its potential remains enormous internationally. In the North America zone, Netflix has not yet filled up with subscribers: there is still a small third to pick up. In the Latin America zone, this time, growth is not as rapid as expected, but it is still there. The Europe/Middle East/Africa zone continues to grow while the zone with the greatest potential in terms of subscriber growth is the Asia-Pacific zone.
The box is well managed, it is healthy. This year, for the first time, it will generate positive cash flow. It will therefore no longer need to raise debt to continue its growth and it will be able to rely on its own cash flow. All the indicators therefore remain green, even if growth is slowing down.
“Netflix enjoys much lower churn rates than others”
But Netflix still has to face increasingly strong competition from other platforms, such as Disney+ or HBO Max…
The fact that Netflix has many competitors does not call into question its strategy, on the contrary, it validates it. Certainly, a few years ago, the company did not face the very strong competition of Amazon or Hulu for example and it must now face the more recent competition of the juggernauts like Disney + and HBO Max. But the luck of Netflix is that it is the first entrant on the platforms and that the American company enjoys much lower churn rates than the others.
One of the major problems Netflix faced was the withdrawal from its catalog of intellectual properties from different studios, such as Disney, for example, hence the importance for Netflix to produce its own content. Netflix is at this stage still protected because users keep their subscriptions, even if they go to see the other platforms.
“Content is the sinews of war for Netflix”
In this competitive universe, can we envisage that Netflix will experience greater difficulties in the future?
For the moment, there is no risk for Netflix of losing its subscribers, but Netflix is not waiting for things to pass. The box invests billions each year in content, its catalog is renewed and it creates certain franchises around certain successful series such as Squid Game. The goal of the game is to continue investing in content around the world. When Netflix is positioning itself in other sectors such as podcasting, merchandising and tomorrow on mobile video games, the goal is to diversify content to establish these franchises over time.
Netflix may eventually diversify in terms of the type of its content, for example on sports, as Amazon Prime Video has done. Diversification is also possible in the economic model: for the moment Netflix only offers a paid offer while its competitors have multi-level offers, free, paid and freemium.
Netflix’s model is 100% dependent on subscriber satisfaction, unlike other boxes, and therefore the company must deliver quality content that meets expectations. Its future therefore depends on the quality of the content made available to its subscribers or potential subscribers. Content is the sinews of war for Netflix.
Netflix announced in January increases between one and two dollars of its monthly subscriptions in the United States. The base option now costs $9.99, and the most expensive goes to $19.99. Can this cost slow down its growth?
Netflix has a chance: it is completely free of its prices and therefore not subject to fluctuations in raw materials or other things. The platform raises the price of its subscriptions if it is in a market in which it can afford it, such as the United States or Europe. But there are also places where Netflix is lowering its prices, such as in India in December 2021, in order to be more competitive.
It is a lever on which Netflix plays very finely, therefore trying to adapt market by market. However, the price increase cannot be extended indefinitely and Netflix cannot play on this risk-free lever over the long term. In addition, one can wonder if we have reached a ceiling in the United States with a subscription of 20 dollars. Even if with 20 dollars Netflix remains on a price a little higher than that of its competitors, it remains far from the price of a subscription to cable television.