Who Will Win The Streaming Wars? Netflix was the first to take streaming video mainstream, and until quite recently, it was the only major player in the streaming market.
Other companies attempted to roll out their own versions of on-demand streaming, but they couldn’t match Netflix’s technology and content. Hulu came closest, but it was never able to pull market share away from Netflix. Many subscribers were willing to pay for Hulu in addition to Netflix – not instead of Netflix.
That changed in 2019 when Disney+ made its debut. The Walt Disney Company had the resources to build a state-of-the-art platform, and Disney owns some of the most popular film franchises and characters in the world.
The fact that Hulu and ESPN were already under the Disney umbrella made the rollout even easier. Disney bundled Disney+, Hulu, and ESPN for a low introductory price, which encouraged consumers to subscribe.
Though industry experts started to speculate about the future of Netflix, most agreed that the streaming giant wouldn’t lose market share.
HBO launched its competing streaming service in May 2020, offering exclusive HBO content that wasn’t available elsewhere. NBC Universal’s Peacock streaming service followed in July of that year, joining a growing list of providers.
The pandemic made it possible for all of the video streaming platforms to get established because consumers were willing to pay for multiple subscriptions.
At-home entertainment options were limited, so adding a Disney+/Hulu/ESPN bundle to Netflix, Amazon Prime, HBO Max, Apple TV, and Premium Peacock access wasn’t unreasonable.
However, as COVID-19 was brought under control, people resumed their normal activities outside the home and started rethinking the wisdom of paying for multiple streaming services.
Then, the unthinkable happened.
In the first quarter of 2022, Netflix lost subscribers for the first time in ten years. Share prices dropped sharply when Q1 results were announced, and Netflix stock remains down more than 50 percent year-to-date.
Will Netflix recover, or is this the beginning of the end for the streaming giant?
How Big Is The Market For Video Streaming?
Pandemic or no pandemic, the number of households with video streaming subscriptions continues to grow. In 2015, just over half of US families subscribed to a streaming service. In 2022, that figure is up to 83 percent.
Keep in mind, the 83 percent references households that choose paid services without advertising, like Netflix. When paid/ad-supported streaming and free/ad-supported streaming are included, close to 90 percent of US households have streaming video access in one form or another.
The statistics are similar in other developed countries, and they are rising rapidly in emerging economies. Improved access to the internet has boosted everything from e-commerce to online entertainment in countries throughout Africa, Asia, and Latin America.
The global outlook for the video streaming industry is robust, with some researchers estimating a compound annual growth rate (CAGR) of around 19 percent through 2028.
This level of growth leaves plenty of room for multiple video streaming platforms to thrive, which is one of the primary reasons Netflix co-CEO Reed Hastings has never been worried about competition.
In his most recent letter to shareholders, Hastings expressed confidence in the company and explained the competitive edge that will ensure Netflix wins the streaming wars.
Will Netflix Stock Recover?
Investors were alarmed by the news that Netflix lost subscribers during the first three months of the year, and they reacted with nothing short of panic.
Netflix stock went down sharply in a matter of hours, and it was weeks before a gradual upward trend was visible. The stock might have recovered within a few months, but external economic conditions put the entire tech industry in a bind.
High inflation, interest rate increases, and geopolitical tension prompted consumers to cut down on discretionary purchases, and investors traded in risky growth stocks for safer alternatives.
Fortunately, Netflix didn’t panic, and leadership immediately went to work on addressing the challenges facing the company. It restructured the business to ensure continued profits and adapted its product lineup to reflect changing consumer preferences.
For example, the company introduced new, less-expensive subscription tiers that offset membership fees with advertising. It is rethinking its previous policy of overlooking password sharing, and it is expanding its gaming division to ensure multiple revenue streams.
Those moves and several others made it possible for Netflix to deliver strong third-quarter results. Revenue increased six percent year-over-year for a total of $7.93 billion, and the platform added 2.4 million subscribers.
However, those figures aren’t the reason co-CEO Hastings is so optimistic about the future of Netflix. There’s another reason Hastings is certain that Netflix will win the streaming wars.
Who Will Win The Streaming Wars?
Netflix has been on top in the streaming video industry for so long because it has certain advantages that can’t be duplicated. The biggest is many years of user data that it can mine for insights into what subscribers watch and how they use the service.
Netflix has always prioritized optimization of the user experience because it is a stand-alone business that relies on streaming video to generate profits.
That fact is an essential distinction between Netflix and its streaming competitors. The others offer streaming video as a fringe benefit to complement other products. For example, Amazon Prime Video is a perk to draw in Amazon Prime members, and Disney+ is peripheral to the larger company’s primary business.
As a result, Hastings believes Netflix is the only streaming service that has an operating profit. In his letter to shareholders, he said he estimates the combined losses of competing services at more than $10 billion.
Meanwhile, Netflix has an annual operating profit of $5 to $6 billion – and it doesn’t have to sink huge amounts of cash into marketing to attract and retain subscribers.
Hastings said that it won’t be long before the streaming wars come down to competitive excellence, and he is certain that Netflix is well-positioned to meet that challenge head-on. That’s why, Hastings said, Netflix will ultimately win the streaming wars.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.