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Reasons why someone might think that the leading streaming company Netflix is in trouble may include their $20 billion debt, partnership with Disney ending, or maybe the ad-less format. While none of these sound good, Netflix may be in better shape than you think. Don’t discount their competition though, Netflix still will have to fight to keep its lead.
Currently Netflix has quite a few competitors such as HBO Now, FXX, Crackle, but none as large as HULU and Amazon Prime. For many years Netflix had a strong hold on the market. It completely changed the face of watching TV, the ultimate ‘turn it on and leave it’ system. Since then multiple services have tried to replicate what Netflix has managed to pull off but not quite successfully.
Competitors Have Better Marketing
Netflix does not offer much direct marketing and relies mostly on their big name stirring word of mouth. Once in a while you can catch a commercial for it on YouTube or a trailer for their originals on TV. Compare this with Hulu’s partnership with Spotify for $5/month deal for college students, a huge market for digital services that they can bill for years to come. Amazon Prime also has ads running consistently across different apps, websites, and channels.
Netflix was a pioneer of streaming services and has kept true to their format of unlimited watches with no ads for a monthly flat fee. This can be a costly strategy since the main way of drawing in profits is enticing new subscribers with quality programs. If a business isn’t growing its dying, and Netflix has a serious risk of plateauing.
Purchasing Licenses
Netflix relies mostly on title licenses to other company’s products, but that’s exactly what may put them in a tough spot. HULU, Netflix’s largest competitor, is owned by Fox and has direct access to its own properties. Amazon Prime, second, is one of the most successful companies in the world right now and can afford any title they want. Luckily, years ago Netflix made an exclusive deal with Disney. Disney was a huge draw with titles consisting of the blockbuster Marvel movies, the Star Wars franchise, and a slew of animated movies.
In summer of 2017, Disney announced it will be parting ways with Netflix to create its own streaming service. This is not great news for Netflix. Not only are Disney properties a huge draw to their service, but now there will be yet another large-scale competitor in the ring. The split with Disney isn’t as bad as it may sound though. Netflix reported that in 2017 most of the popular titles were Netflix Originals which, as the name implies, Netflix has complete control over. The split was actually an expected move. Netflix anticipated years ago that companies like Disney might want to retake control of their projects, which is where the $20 billion in debt comes into play.No matter how you say it, a $20,000,000,000 hole doesn’t sound… good (check the bar graph for reference).
A Future of Originals
In reality massive debt is all part of Netflix’s greater plan. For the past 3 to 4 years Netflix has been pouring increasing billions into Originals. Within the foreseeable few years Netflix hopes to own the rights to up to 50% of its library, an extremely ambitious and risky challenge. The trend of streaming services creating their own originals started a few years ago to varying success; Netflix being the notable leader with shows like 13 Reasons Why (topping Netflix’s viewership charts), Stranger Things, House of Cards, and other big draws like the Marvel shows. For continued success Netflix will have to continue putting out quality content while at the same time reducing their budget.
Budget is HUGE concern for Netflix mainly due to the format but dropping billions on Originals in the hopes of subscriber growth is also risky. They are dealing with this by promoting cheaper drama-based shows like ‘13 Reasons Why’ and ‘House of Cards’. Unfortunately, this means shows that people enjoy and are highly rated like Sense8 may get the axe regardless because each episode’s budget simply exceeds the audience draw. Netflix is hoping to keep their market growing by opening throughout the world: launching in the UK in 2012, Australia in 2015, and with luck China soon.
Overall there is nothing that can stop a growth plateau of this size population, and what we may see in the future because of this is a wider variety of low budget shows. With the dying of TV and theaters there is no doubt that streaming video is the way of the future and streaming companies will effectively become the online equivalent of modern TV channel packages. Each producing their own content for a subscription with minimal commercial interruption (Amazon has also begun to heavily promote their Prime Originals, and Disney will have full rights to all of its products). Or maybe Netflix will be forced to give up their ad free format to pick up profit slack and keep ahead of their competition who have no issue putting ad breaks in their shows.
What comes after could be anyone’s guess, mine being that ‘middle-man streamers’ will form that give access to a title from service for a small fee, similar to a movie rental, allowing popular shows to prosper but ultimately have vaster less of a budget than today’s shows. Maybe the variety and smaller budgets will allow for better and more unique writing and filming. All we know for now is Netflix is going to be okay for the time being but is leading a massive change in entertainment within the next 20 years.