Netflix reported its Q4 earnings on Thursday. A subscribers target miss, along with a weak forecast for the first quarter of 2022 hit shares of the company hard. Here we dive into demand for Netflix’s content over the past quarter to better understand where these headwinds are coming from.
The long term trend is clear in the above chart - Netflix is the streaming incumbent threatened by the expansion of newer competitors. While Netflix’s share of the pie has been consistently chipped away at, it has still grown its subscriber base as the total size of the streaming pie increases even as its share shrinks. In Q4 2021, Netflix originals accounted for 45.4% of global demand for digital original series.
While Netflix has benefitted from its global footprint, with its largest growth in subscribers coming from outside the US, the expansion of its competitors into global markets threatens to bring further competitive headwinds to Netflix across the globe.
Netflix nearly maintained its global share of demand for originals from Q3 (45.8%), which given the continued declines it has seen can be viewed as a success. However, looking at its strong slate of content this quarter this result is perhaps disappointing. The last quarter of 2021 looked like it should have been a stellar quarter for Netflix. Four of the top five most in-demand digital original series globally were Netflix originals. December saw the long anticipated second season of The Witcher return and the series finale of La Casa de Papel. There continued to be high demand for surprise breakout show Squid Game, showing Netflix’s investments in international content are paying off. All this and the best Netflix managed was to hold its global share of demand for originals steady. This speaks to how competitive the streaming wars have become.
Take Amazon as an example this quarter. Its original, The Wheel of Time, this quarter and looks on track to be the most in-demand new series premiere overall in the US for 2021, with 43.2 times the average series demand in its first 30 days. Despite this, Amazon’s share barely budged this quarter (8.9% vs. 8.6% in Q3). In previous years, a hit of this scale would no doubt have grown a platform’s share of demand. Now a megahit like this is just enough to barely move the needle.
It’s also worth zooming out and considering the landscape of demand for all series, not just digital originals. While Netflix is still the dominant streamer, in the battle for audience attention across all content it faces an uphill battle against established media giants. These companies are all now competing with their own streaming platforms and will be more likely to claw back any content they’ve licensed out to bolster their own value proposition to subscribers.
All this points to a more challenging future for Netflix as it fights to add subscribers around the world. As the streaming landscape gets more crowded, ever bigger (and likely more expensive) hits will be needed to gain audience attention share. Its early position of dominance now looks harder to grow from when faced with new platforms seeing faster growth and global expansion. Today’s weak guidance and strong investor reaction seems to indicate the market is waking up to this possibility as well.
