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Netflix industry analysis: Are there threats on the horizon?

By Connor Freitas
October 11, 2019, 9:25 AM GMT
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    Disney and Apple are coming. TV networks are setting up their own streaming platforms. Investors are nervous. What does the future hold for Netflix?

    Netflix industry analysis: Are there threats on the horizon?

    Netflix is now one of the biggest names in the entertainment world. It can take some businesses decades to achieve dominance, but this Californian company has managed to pull the rug from under the feet of the Hollywood titans. It began life offering DVD rentals through the mail in 1997, but the early 2010s saw the brand make two game-changing decisions: to stream TV shows and films online, and to create original content.

    Just take a look at Netflix stock performance to see how those high-risk moves have paid off. From an initial public offering of $15 per share back in 2002, the company reached dizzying prices of beyond $400 a share in 2018. However, in terms of NFLX predictions, there are some clouds on the horizon. Stock has tumbled substantially from these highs in recent months, down to about $274 at the time of writing. What gives? In this article, we’ll deliver detailed Netflix industry analysis and explore some of the threats and opportunities that lie ahead.

    Netflix industry competitors: Rivals play catch-up

    Before we begin to examine this increasingly crowded landscape and offer NFLX predictions, there’s one thing that’s worth making clear: when it comes to streaming and video on demand (VOD), Netflix is in a dominant position.

    As of the second quarter of 2019, it has 151 million paying subscribers worldwide (to put that into context, that’s comfortably more than the entire population of Russia). Customers are loyal because they want to see the next instalments of Netflix-made shows such as The Crown and Stranger Things (even though hit series such as Orange Is the New Black and House Of Cards have recently come to an end).

    So if that’s all true, why has Netflix stock performance taken a dive recently? Well, it seems that investors are nervous about internationally renowned competitors preparing to unveil their offerings. Apple TV+ and Disney Plus are going to go live in November. While Apple is splashing the cash on new content with little-known characters as well as established kids’ favourites such as Sesame Street, Disney is relying on its extensive back catalogue of Pixar, Star Wars and Marvel blockbusters. A new High School Musical series is in the pipeline as well as a Star Wars series and a live-action remake of Lady and the Tramp.

    As you can see, when it comes to Netflix industry competitors, there are some formidable rivals. We haven’t even discussed the likes of Amazon Prime Video and Hulu, which have also managed to nibble away at Netflix’s market share.

    Here’s the big problem: consumers aren’t going to want to pay for all of these separate streaming services. It’s not just going to be a fight over who has the best content, but a battle for your wallet. Price points are going to become even more sensitive. Indeed, Apple is planning to give away a year’s subscription for free with some of its flagship products.

    To further complicate matters, Disney shows and films are disappearing from Netflix in territories around the world. Mickey Mouse isn’t playing around, and Disney doesn’t want their content on rival platforms because it disincentivises would-be customers who might be tempted to jump ship. This is set to have a detrimental impact on the choice afforded to Netflix customers, making them think twice about that monthly subscription. It also isn’t an isolated incident. Over in the United Kingdom, two major broadcasters – BBC and ITV – have unveiled plans to launch a streaming platform that offers exclusive content and “the largest collection of British box sets”.

    Netflix industry analysis: Promising or dire?

    Alarm bells recently began sounding when it emerged that Netflix subscriber numbers in the US had fallen for the first time since the service launched. Shares plunged by 10 percent, with investors clearly worried that the streaming giant had saturated one of its biggest markets, or that consumers were beginning to look elsewhere.

    When it comes to NFLX predictions, analysts also fear that a “race to the bottom” in terms of prices will be coupled by record spending on new content – expenditure that simply won’t be sustainable for some. Netflix made a net income of $1.2 billion in 2018 – compare that to Amazon’s $10.1 billion, Walt Disney’s $12.6 billion, or Apple’s $59.5 billion. These rivals have much deeper pockets, and other revenue streams to boot. Although the company may be tempted to burn through cash in order to keep customers tuning in, poorly received (and costly) acquisitions, coupled with a diminishing back catalogue, could prove to be a turn-off.

    With TV viewership numbers dwindling, Netflix is certainly ahead of the curve compared with legacy broadcasters. But this shouldn’t be at the expense of keeping up with changing consumer habits. A Piper Jaffray survey recently found that teenagers prefer to watch YouTube – meaning that the ability to convert younger viewers into paying subscribers will be essential if revenues are to continue rising.

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    Tokenised securities are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how tokenised securities and leverage work and whether you can afford to take the high risk of losing your money. Nothing in the above article should be regarded as a recommendation to trade generally, to trade on a particular platform or to trade in a particular asset. Asset prices can go down as well as up and past performance is not a guide to future performance. Investors and traders should thoroughly research an asset or strategy before making any trading or investment decision and if necessary seek professional advice.

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