An absurd thing happened in the first half of 2021: The famished appetite of consumers for streaming video content began to slow down. This will be a big challenge for Disney+ , and Netflix.
We had those 10 years where we were growing smooth as silk, and then it just got a little wobbly, said Netflix co-CEO Reed Hastings in an April 20 video for the company’s first-quarter earnings after the company missed its modest subscriber estimates.
The pull-forward indicates that while the COVID-19 pandemic accelerated streaming trends — to the benefit of Netflix and Disney+ in 2020 — it is now coming back to bite them. Consumers who may have been on the railing about subscribing were enticed to buy in as lockdowns were put in place last year.
“It boils down to COVID, frankly,” said Netflix CFO Spencer Neumann in the company’s earnings video. “We had this huge pull-forward in 2020 in terms of our subscriber additions, nearly 40 million paid net adds in 2020.” That left a smaller pool of potential customers this year.
With 95 million Disney+ net adds in its first five quarters, momentum was bound to decelerate at some point, wrote Wells Fargo analyst Steven Cahall in a report on May 14.
In the case of the re-opening, the same signs that are making movie theater owners optimistic for this summer are spelling concern for streaming executives. With the content squeeze, the industry faced its version of the chip shortage that is hurting the auto industry or the lumber shortage that jacked up the price of home renovations and film and TV set materials.
But instead of a physical commodity in short supply, it was new programming. “A lot of the projects we had hoped to come out earlier did get pushed because of the postproduction delays and the COVID delays in production,” Hastings said.
Executives are betting that fresh, original, must-see content will be their ticket back to reliable subscriber growth. And with production back in full swing, there is an expectation that the latter half of the year could mark a return of something closer to normal, with a “clear catalyst to a reacceleration of growth toward that backend of the year,” said Netflix co-CEO Ted Sarandos.
NOT ONLY DISNEY+ AND NETFLIX – THE OTHER COMPETITORS IN THE RACE
Multiple streaming services are also trying to chart a path to growth with strategies that may deliver raw subscriber numbers in the near term, but risk delivering lower average revenue per user (ARPU). Paramount+ and HBO Max are betting that less expensive ad-supported tiers can bring in subscribers that may be feeling the pinch of having too many premium video options. HBO Max With Ads launched June 4 at $9.99 per month, a $5 discount. Paramount+, meanwhile, lowered the price of its ad-backed tier by $1 to $4.99 per month.
Ad-supported streaming is now foundational, says Andre Swanston, CEO of the TransUnion-owned streaming data and measurement firm Tru Optik. “I think it was almost a business imperative. My biggest surprise is that Netflix still hasn’t pivoted to do the same.
It goes to the heart of the value exchange question,” adds Eric John, VP of the Interactive Advertising Bureau’s Media Center. “If you talk to the folks at Hulu, they would tell you that growth has always continued to be in the ad-supported, less expensive tier.
Indeed, the goal is, in the words of WarnerMedia CEO Jason Kilar, to be “economically indifferent” as to which tier consumers buy. According to Disney’s second-quarter financial report, thanks to advertising, the average Hulu subscriber brought in just over $12 per month in revenue, despite most subscribers paying for the $5.99 ad-supported tier.
As Disney+ and Netflix seek to return to subscriber growth, and as Paramount+, HBO Max, and others try to carve off large pieces of the pie for themselves, the second half of 2021 feels like it could mark a decisive moment in the streaming wars as everyone fights for subscribers.