After a quarter where Netflix just barely missed its subscriber target, the company’s stock took a wrecking ball to the teeth. It’s down 24% this morning. Investors saw red flags in the company’s Q1 guidance as the streamer projected just 2.5 million new accounts.
As growth slows, Netflix is turning to higher prices in the U.S. and Canada to keep the money machine whirring. Gregory Peters, Netflix COO, said the price hikes will occur in Q1 for existing subscribers. “What we’ve seen over the last couple of years, which is that…if we’ve done a good job investing the members’ subscription fees that they paid us into better stories, more great storytelling, bigger movies, more variety, then when we come back and ask them occasionally for a little bit more to keep that sort of cycle going, then they’re generally willing to do that, and we don’t see any significant disruption to the business otherwise in that regard,” Peters said.
During the investor presentation, Netflix brass was asked about the usual schemes to raise revenue — cracking down on password sharing or building an ad-supported model — and they refused to say anything about that possibility. That would seem to indicate that Netflix plans to plow forward as-is with its focus on premium streaming and gaming.
Peters spoke about the early results of Netflix’s gaming efforts. “We basically have been building the plumbing and all the technical infrastructure just to get to the point where we can do this, which is consistently launch games globally to all of our members,” Peters said. “We’re now really getting to learn from all those games what are the discovery patterns, what are the engagement patterns? How are they performing? What do our members want from games on the service? And it’s still very early days. But generally, what we’re seeing is not surprisingly, we have a growing number of monthly active users, daily active users on these games.”
Nail-biting investors, already shaken by an overall stock market correction, dumped the stock after the earnings report. Yes, Netflix mentioned competition as a headwind. Yes, the guidance was low. Yes, they missed their Q4 subscriber target. But, as Variety points out, Netflix is still the 800-pound gorilla in the streaming wars.
If competition is a problem for Netflix, it’s also a problem for all other players in the space. Every service is fighting for subscribers. It’s important to remember that Netflix does have an advantage in that it owns a huge percentage of its catalog. As it produces more movies and shows, there are no international rights to negotiate. It’s free and clear to share its content anywhere. For a company like Disney, it has to deal with the existence of Hulu in the U.S. and a rat’s nest of sports rights across the globe for ESPN+.
It’s true that Netflix is facing some new dangers, but something cataclysmic will need to happen for it to fall from its leadership position. It’s possible prices will eventually become too high or its content pipeline could stagnate. But every competitor has already put its best foot forward with streaming. Disney+ can’t magically double its library with the same quality of hits it has accumulated over the past 100 years. What else can HBO Max acquire to make its service more valuable?
In the aftermath of yesterday’s earnings, CNBC’s wall of talking heads offered all kinds of wild scenarios for Netflix. Should Apple buy the company? Should Netflix acquire Spotify? Neither is likely. Netflix will continue its steady march upward internationally and prices will continue to creep up. They’ll add a global sensation like “Bridgerton” or “Squid Game” once or twice a year. We may see some competitors throw in the towel and lease their content to a larger player.
The gaming aspect is something that will take years to build out, and it may never become a significant profit center. Just as Meta Platforms (formerly Facebook) is throwing crazy money at the metaverse and other tech companies dig into crypto or NFTs, today’s dominant platforms are searching for the next big thing. As long as those efforts don’t erode the quality of the business that drew so many users in the first place, it’s a worthwhile experiment.
Investors may be scared, but Netflix isn’t done. Not by a long shot.