Netflix kicks off the final media earnings cycle of 2023 in a position of strength compared to its competition, but with major questions regarding the value of its prodigious library and how it contributes to future growth in a more challenged marketplace.
With one half of Hollywood’s dual labor stoppage over, the industry hopes to get productions back on track in the final quarter of the year. Regardless of when the studios and actors reach an agreement, the impact on original content will continue to be felt well into 2024, with Netflix’s flagship original Stranger Things among the many prominent series that will have an extended delay between seasons.
The Hollywood shutdown — along with companies cutting back on spending — has already impacted the supply of streaming original content. In fact, the growth rate in the global supply of new streaming original series has shrunk during all three quarters of 2023, with Q3 experiencing the sharpest drop off so far.
With less volume, hit rates become even more integral to a successful platform which requires an efficient and effective combination of acquisition, retention and engagement titles.
How can Netflix feed the beast until productions start up again?
Sports Content
The leading streamer has flexed its muscles in the second half of 2023 by expanding its sports docu-series slate with Quarterback in Q3, and Beckham at the beginning of Q4.
This sports-centric content builds on the momentum from the first half of the year with the successful debuts of Tour de France: Unchained (cycling), Break Point (tennis) and Full Swing (golf).
These relatively cheap productions are drawing in sports fans to the platform for a fraction of the cost of live sports rights.
Suits Effect
Netflix showed its ability to dominate pop culture without even releasing a new show, by licensing the USA Network original Suits. The series had already been available on Peacock, but its global demand skyrocketed once it started streaming on Netflix toward the end of Q2.
Suits remained one of the most in-demand titles on the platform throughout Q3. With a whopping nine seasons and 134 total episodes, Suits represents the type of long-tail retention and engagement that Netflix — and its advertisers — love to see.
Netflix alone, with its scale and reach, has the power to prop up older linear hits like this, in a similar way it did for Lucifer, Manifest, and You.
Increased demand for Suits was one factor that helped Netflix grow its share of total on-platform demand in Q3 2023, expanding its lead over second-place Max from a 0.6% margin in Q2 to 1.9% in Q3.
This begs the question of whether Netflix will change course and increase content spend on licensing, especially as companies like Disney, Paramount, and Warner Bros. Discovery look to license more of their own titles to outside platforms as they strive to move from the red into the black, going forward.
Netflix is still the dominant media company heading into the end of 2023 and beyond. It has the scale to get cultural credit for its rivals’ content, a more cost-effective way to win over sports fans, and above all Netflix remains the only major company that is consistently profiting from the streaming business.
State of the Industry
- As leading media conglomerates cut costs, and as the Hollywood labor strikes dragged on for record time, it is important to track trends in the supply of streaming original content to assess the state of the overall industry.
- Between the beginning of 2020 and Q3 2023, there has been a 248% increase in the global supply of streaming original titles as leading companies have prioritized DTC platforms and chased Netflix’s business model.
- However, the rate of growth for streaming original titles has steadily slowed down in 2023. Until this year, there had not been more than one quarter in a row of a shrinking growth rate in global streaming original supply. Now this growth rate has fallen for three consecutive quarters, Q1, Q2, and Q3 of 2023.
- This is evidence that a slowdown in streaming original output is already happening, as a combination of both major companies shifting business models and cutting back, and the sharper drop off in Q3 likely a result of the dual strikes in Hollywood.
Netflix Streaming Original Supply Share
- Netflix’s supply share of global streaming original titles has steadily ticked down since 2020, as new competitors entered the field, falling from 33.1% in Q1 2020 to 25.3% in Q3 2023.
- Looking at the supply share of new premieres during each quarter, the impact of Netflix’s increased competition is even more stark. As recently as Q3 2021, Netflix accounted for 30.2% of all new streaming original titles released globally. Fast forward two years and Netflix’s share of new streaming originals worldwide is down to 14.7%
- Each quarter in 2023 has seen Netflix’s supply share of new streaming original premieres drop below 15%.
Streaming Originals Demand Share
- Netflix’s share of global demand for original series continued to hit new lows, sitting at 33.3% in Q3 2023, a full twenty percentage point drop from three years ago, 53.5% in Q3 2020.
- However, given that Netflix’s global share of the supply of streaming originals is down to 25.3% this past quarter, the 33.3% demand share should be considered an over-performance. This is evidence Netflix is still delivering strong value to their subscribers especially when it comes to streaming originals — a key leading indicator of subscriber growth.
- That said, three years ago, Netflix was outperforming its supply share by a much higher margin. In Q3 2020, Netflix had 32.2% supply of global streaming originals, and 53.5% demand.
Netflix On-Platform Demand Share Grows
- Demand for original content drives subscription growth, but library content is key for customer retention, an increasingly crucial element of all streaming strategies as consumers have more choice and easier ways to cancel than ever.
- As the growth in supply of new original content ticked down sharply in Q3 2023, consumers returned to library content and/or recently resurfaced fare, such as Suits on Netflix.
- In fact, Netflix widened the gap over its competition in on-platform demand share in Q3 2023.
- In Q2 2023, Netflix led Warner Bros. Discovery’s Max 16.6%-16.0%. Max surged that quarter due to wrapping in most of Discovery+’s catalog.
- In Q3 2023, as consumers turned to more library content, Netflix widened its lead here to 17.3%-15.4% over Max.
- This suggests Netflix was able to further cement itself as the leading ‘streaming home’ for consumers during the nadir of the Hollywood labor strikes.
