October 20, 2021

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Netflix needs the next big thing

Netflix needs the next big thing

Disney has Disney +, but it also has theme parks, Baby Yoda plush toys, blockbuster Marvel movies, and ESPN. Comcast (CMCSA), Amazon (AMZN), ViacomCBS (GO), The parent company of CNN WarnerMedia e Apple (AAPL) they all have their own streaming services, but they also have other forms of income.
As for Netflix (NFLX), its revenue engine relies entirely on building its subscriber base. It has worked well for the company so far. But it’s starting to seem like the streaming king will soon need something other than new subscribers to keep growing.

This has been a big smell for Netflix – a company that has come out of a huge year of growth thanks in large part to the pandemic that has brought people into the house – and the reaction from Wall Street hasn’t been great.

Shares of the company fell as much as 8% on Wednesday, leading some to wonder what the streamer’s future will look like if competition continues to gain strength, people start heading outdoors, and if, more importantly, its growth slows.

“If you hit a wall with [subscriptions] so you practically no longer have a super growth strategy in your more developed markets, “Michael Nathanson, media analyst and founding partner at MoffettNathanson, told CNN Business.” What can they do to get even more market revenue, beyond streaming revenue? “

Or in other words, the company’s poor user growth in the last quarter is a sign that it wouldn’t hurt if Netflix, a company that has lived and died with its subscriber numbers, started thinking of other ways to go about it. money.

An ad-supported Netflix? Not so fast

There are ways Netflix can make money other than raising prices or adding subscribers. The most obvious: sell advertising.

Netflix could have 30-second commercials in their programming or get sponsors for their biggest series and movies. TV has always worked this way, why not Netflix?

That probably won’t happen, as CEO Reed Hastings talked about the unlikelihood of an ad-supported Netflix service. His reasoning: It doesn’t make business sense.

Harry and Meghan set their first series on Netflix
“It’s a judgment … It’s a belief that we can build a better business, a more valuable business [without advertising]”Hastings told Variety in September.” You know, advertising seems easy until you get into it. Then you realize that you have to snatch that revenue from other places because the total advertising market isn’t growing, and in fact right now it’s shrinking. It’s a hand-to-hand fight to get people to spend less on, you know, ABC and to spend more on Netflix. “

Hastings added that “there is a lot more growth in the consumer market than advertising, which is pretty flat.”

He also expressed doubts that Netflix could indulge in sports or live news, which could add to the service’s appeal for subscribers, so that’s probably out too, at least for now.

So, if Netflix is ​​looking for other forms of short-term revenue to support its massive content budget ($ 17 billion in 2021 alone), then what can it do? There is a place that could be a profit factor for Netflix, but if you borrow your mom’s account you won’t like it.

Netflix could crack down on password sharing, a move the company has been considering recently.

“Basically you’re going to clean up some subscribers who are free riders,” Nathanson said. “This will help them reach a higher level of penetration, certainly, but not in the long term.”

Weak growth is still growth

Missing screenings are never good, but it’s certainly not the end of the world for Netflix. The company remains the market leader and most competitors are still far from growing the company. And while Netflix’s subscriber growth in the first quarter wasn’t great and its forecast for the next quarter alarmed investors, it was only one quarter.

Netflix has already had problems with subscribers and is still the most dominant name in all of streaming, and sluggish growth is still too. growth. It’s not like people are canceling Netflix in droves.

When asked about Netflix’s “second act” during the company’s post-earnings call on Tuesday, Hastings again put the company’s focus on pleasing subscribers.

“We want to expand. We did that thing by shipping DVDs, and luckily we didn’t get stuck. We didn’t define it as the main thing. We define entertainment as the main thing,” Hastings said.

He added that he doesn’t think Netflix will have a second act the way Amazon has had with Amazon purchases and Amazon Web Services. Rather, Netflix will continue to improve and grow on what it already does best.

“I bet we will end up with a hopefully gigantic and hopefully defensible profit and continue to improve the service for our members,” he said. “I’m not going to be looking for a large secondary profit pool. There will be a lot of support pools, such as consumer products, that can be both profitable and capable of supporting the title brands.”