Can Any Competitor Catch Netflix?

In recent weeks, we have read and heard a great deal about the coming battle ahead in streaming video. All types of media players seem to be gunning for Netflix with the biggest players being Disney, Comcast, Amazon, and possibly Apple and Facebook. Legacy players are realizing that “direct to consumer” will be the new mantra and a wide number of entities are trying to position themselves for survival . New entrants such as Apple and Facebook see opportunity.

The question that is rarely addressed is has Netflix already won the direct to consumer war? They are truly global and have approximately 140 million subscribers worldwide and they have granular data about what their subscribers want and like and can produce programming accordingly. Even though some of the prospective competition have deep pockets, Netflix has a commanding lead. One that has surprised me in growth or lack of it is Amazon Prime Video. The service, Amazon Prime Video, comes included in an Amazon Prime subscription. Admittedly, this is anecdotal but I have been surprised with the reaction of people in recent weeks re the Amazon streaming service. When I asked people if they watch it, some say, “No, I do not subscribe.” When I follow up with do you use Amazon Prime, I can receive an indignant, “Of course.” It appears that some do not realize that it comes as a part of the Prime subscription. A few young adults have told me that they are so far behind on Netflix, they cannot deal with another service at present even if they have access at no additional cost. It seems as if Amazon has not done a great job of promoting Amazon Prime Video to Amazon Prime members. Also, speaking personally, their content seems stronger than a year ago with many fine original series.

Disney gets the most press about their new entry for 2019, Disney+. They would have to be considered formidable given their great track record, seven movie studios and ownership of ESPN. Also, ESPN+ seems to be off to a successful start. Additionally, all Disney content will be removed from Netflix when the Disney streaming service launches. Bob Iger, Disney Chairman, reiterated his commitment to direct to consumer in a recent investor conference call.

On January 18, 2019 there was an excellent interview on CNBC with Kay Koplovitz, founder of USA Neworks and Tom Rogers, former CEO of TiVo and CNBC founder. Both said Netflix was sitting pretty and had a commanding lead over competition. Tom Rogers also raised the fascinating thought that legacy companies such as NBC, CBS and Disney had to develop a new business (streaming video) as they simultaneously oversaw and managed the decline of their existing media (ad supported) business (Interview is available on You Tube).

Finally, Netflix is near the top of the list on having the most loyal customers according to research firm Second Measure. Some 80% of their subscribers only buy Netflix and no other direct to consumer service.

So, is it all clear for Netflix? Not so fast. Netflix still is not a great money maker. They are spending $18 billion this year on developing new programming which is a staggering amount of money for a one trick pony that is largely reliant on subscriptions for income. Apple, Disney, and Amazon all have very deep pockets and can play a long game losing money for years as they gain share. When I brought this up with someone recently, he called me an “old mossback”, telling me that I did not remember how Amazon lost money for years but Wall Street was happy as long as sales growth continued. I agreed but see Netflix as much smaller and with limited upside relative to Amazon.

What could save Netflix over the long pull from financial problems? My best thinking is that Apple or Microsoft could buy them and both would be decent fits. I would not be surprised if Apple has not wished they purchased them 18-24 months ago.

The fun is about to begin. Does Netflix have a prohibitively large head start? Time will tell.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.