Guilherme Ravache - Why Netflix lost ground and the golden age of streaming ended

Guilherme Ravache – Why Netflix lost ground and the golden age of streaming ended

Disney announced this week that it has overtaken Netflix in the number of subscribers worldwide. The news surprised. Disney went live a little over three years ago, when it launched Disney+. Netflix launched its streaming platform 15 years ago and until last year was the absolute leader in the industry.

In the second quarter of this year, Disney+ added 14.4 million new subscribers, bringing its global subscriber total to 152.1 million. Thus, Disney has a total subscriber base of 221.1 million customers across all streaming platforms, including ESPN+ and Hulu. Netflix reported last month that it has 220.67 million subscribers.

A series of errors help explain Netflix’s downfall, from increased competition from new streaming platforms in the marketplace, to the Tudum owner’s wrong decisions, such as abandoning live sports broadcasting, causing significant price increases in subscriptions and over-production and losing the artistic quality of content.

But perhaps the explanation for the Disney feature is that the traditional giant realized before Netflix that victory would go to whoever had the best content.

Disney+ is betting on quality, not size

Yes, Netflix took the lead in streaming. But it only grew rapidly while using studio products and big TVs. When traditional content producers started not renewing licensing contracts to invest in their streaming platforms, Netflix was forced to make original series and movies.

At first this was not a big problem. House of Cards, Netflix’s first original production, launched in 2013, was a hit. The series was a high-quality product, had big stars, and opened the door to the kind of author content that talents could not find space to do on television or cinema.

The problem is that Netflix has been needing to replace what it lost in its catalog at a faster rate than ever before. Thus, billions of dollars have been invested in its production, prioritizing volume. The bet was on debt-based growth to increase production before other competitors entered the market. The problem is that creating blockbuster movies is difficult and takes time. The fallacy that data can solve the problem didn’t help either.

Disney CEO Bob Iger told Vanity Fair in 2019, two months before it launched Disney+. “What Netflix does is create content to support a platform,” the executive said. “We make content to tell great stories. It’s completely different.”

Disney+ CEO Agnes Chu said shortly before the launch of the Disney platform that this approach would be nostalgic but also very cautious. “We don’t do a lot of things just to get them done,” she said. “In everything we do, we have a very clear focus that has to meet the criteria set by Originals and we hope to take it to another level at Disney+.” His fellow CEO Ricky Strauss also noted, “Netflix has been around for years doing what it does. So yeah, we’re not going to be competitive in terms of quantity.”

During the pandemic, Netflix’s plan worked. Solitude was also driven by Disney+. The problem began late last year, when people were returning to their normal lives, not staying at home, and interest rates began to rise, making the debt of streaming companies more expensive. This made investors start taking profits from the companies.

Darth Vader wins Stranger Things

When Disney launched live streaming, it could have adopted a quality strategy simply because it had decades left over. In addition to owning ABC TV, and having globally recognized characters like Mickey, Disney began a series of purchases to revamp its properties while Netflix was still shipping. DVD postal route.

In 2006, Disney bought Pixar Studios, which owns beloved franchises such as Toy Story and Finding Nemo, for $7.4 billion. In 2009, the incredible purchase of Marvel and the star-studded team of heroes came for $4 billion. In 2012, it was the turn of powerful Lucasfilm franchises such as Star Wars and Indiana Jones to take over Disney for $4.05 billion. Netflix was founded in 1997, and in 2007 it launched its streaming service.

Consecutive box office records for Pixar, Marvel, and Lucasfilm have made Disney by far the most profitable movie company. But the appeal of brands is not limited to cinemas. Just 16 months after its launch, Disney+ has reached the 100 million subscriber mark. It took Netflix a decade to reach that number.

Stranger Things is Netflix’s biggest franchise, but even for being younger, it’s small compared to the Marvel universe and Star Wars.

Disney has another advantage. When results were announced this week, the company reported a 26% revenue jump. Streaming subscriptions helped, but the company’s theme parks posted record revenue. Unlike Netflix, which lives on subscribers, Disney’s most profitable business is amusement parks, resorts, and cruises.

Disney parks a consumer’s dream

Sales in the Parks, Experiences & Products division — which includes Disneyland, Walt Disney World and four resorts in Europe and Asia — came to $7.4 billion in the quarter, up 70% from 2021.

The new Guardians of the Galaxy spinner, the visit of Darth Vader or the unforgettable moment of a photo with Mickey makes parents happy with the money in their wallets. This allows sizing. While Netflix expects to spend $17 billion on content this year, Disney expects to spend just $30 billion on content production across all of its holdings.

About a third of that $30 billion is spent by Disney on sports licenses. ESPN, which until recently was considered for sale, has become one of Disney’s gems. The company even abandoned plans to sell. Broadcasting looks more like traditional TV than many realize, with sports also becoming a huge attraction on the platforms.

Buying Fox changed the game

Disney’s acquisition of Fox in 2018 was a vision for the future. In addition to franchises like Deadpool, Avatar, and The Simpsons, Hotstar has been acquired by Disney. The Fox streaming platform has been very strong in Asia, in large part because it holds the rights to the Indian Premier League. Disney+ has 38% of its subscribers in India and Southeast Asian countries. The most populous region in the world is a fan of cricket and the game broadcasts have brought thousands of subscribers to the platform.

Despite the high investments, Netflix is ​​not taking off in the region. The company will have 5 million subscribers compared to 36 million for Disney platforms.

Disney’s back-to-back acquisitions and different platform strategies help each company explain why it’s so complicated to analyze its numbers, especially in a direct comparison with Netflix. Even Disney’s switch to Netflix is ​​questionable.

1 + 1 = 3?

Disney’s total adds up to three services from the company’s bundle: Disney+, ESPN+, and Hulu (of which Disney owns 77%) – while Netflix is ​​evaluated individually. A better comparison might be to look at Disney’s non-duplicate broadcast subscribers (i.e. families), but the company doesn’t reveal that number.

Another important point is that in recent months Hulu has grown faster than Disney +. The platform works especially well among older audiences, who tend to be less interested in Star Wars and Marvel heroes.

Whether or not Disney is the subscriber leader, that’s probably the least of the company’s problems. Part of the explanation for the company’s rapid growth has been its low prices, particularly in Latin America and Asia.

Disney expects that Disney+ won’t turn a profit until the end of 2024. But the company’s losses from streaming are growing. Operating losses for this segment increased to $1.06 billion in the quarter from $293 million in the same period a year earlier. Netflix reported net income of $1.44 billion in the same period.

In the US, Disney generated just 39% of Netflix revenue per subscriber in the second quarter (ARPU). That is, Disney’s average revenue per user is less than half that of Netflix’s average. Abroad, the difference was even greater: Disney+ Hotstar had average earnings per user of $1.20 per month for the quarter ended July 2, while Netflix had average earnings per user of $8.83 per month for the Asia-Pacific region.

The price of the plan is going up dramatically

To reverse the situation, Disney announced that it would increase the price of a Disney+ subscription in the US by 38%. The ad-free Disney+ service will go from $7.99 a month to $10.99 a month, or $109.99 a year. Disney+’s new ad-supported service, which will launch in December in the US, will cost $7.99 a month. An increase in collections with Disney+, Hulu, and ESPN+ is also planned.

In addition to mounting losses, Disney has taken a pessimistic view of the broadcast in the coming months. On Wednesday, the company lowered its long-term forecast for Disney+ subscribers to 215 million to 245 million. This represents a decrease of 15 million in both the lower end and upper bound of the last forecast.

Disney lowered its forecast for Disney+ in part because it is not renewing rights to the Indian Premier League, but also because it believes that rising inflation and a slowing economy around the world will affect the industry. The company lowered its forecast for content investment by $2 billion this year, from $32 billion to $30 billion it announced last week.

Another initiative to improve accounts is the launch of the ad version of Disney +. Netflix has also announced a cheaper plan with ads, while HBO Max is already considering a free plan with ads.

Disney is ahead of Netflix right now. But if streaming is a game with high-quality content and cash to buy and create great franchises, the tech giants are outpacing Disney’s stakes.

Apple+, Google, and Amazon are bigger and richer companies. And like Disney, for big tech companies, streaming is just a way to sell higher value products. We’ll still have massive productions, but cost cuts are becoming a reality, and so are subscription price increases. The golden age of broadcasting is over.


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