February 1, 2024

Is Netflix the Winner of the Streaming war?

The streaming war is raging, but Netflix is emerging as the likely winner, with double-digit growth in users and profit.

Is Netflix the winner of the streaming war?

In recent years, traditional studios like Disney with Display+ and Warner Bros. Discovery with HBO Max have entered the streaming industry, significantly intensifying the competition in the space.

The streaming business requires huge investments to produce high-quality original content, which is key to "stealing" users from competitors. But with monthly subscriptions starting from as little as $5, streamers need an exceptionally large user base to turn a profit.

Profit hasn’t happened at Disney yet, whose streaming unit lost $420 million in FY23 (down from a loss of 1.4bn the year before). Warner Bros. Discovery does better, finally scoring a profit of $111 million in 2023, up from a loss of $634 million in 2022.

But Netflix does significantly better!

In 2023, it increased users by 13% to 260 million, against a worrying drop the year before. It’s been consistently profitable for over 15 years, delivering almost 5.5bn net profit (after tax) in 2023 at a net margin of 16%.

On top of successfully cracking down on password sharing and launching an ad-supported subscription tier, Netflix has a secret weapon: content licensing.‍

Competitors, under pressure to deliver profit, are (re)starting to license their original content to third-parties, including and especially to Netflix. While this generates easy money for the likes of Disney, it also enriches the Netflix’s catalogue, for the delight of its users.

Netflix is so good at servicing its subscribers that when NBCUniversal licensed “Suits” in June 2023, the show went straight to the number-one most watched, despite being relatively old (originally aired on cable TV in 2011). In fact, according to Nielsen, in November 2023, nine of the ten most streamed programs were licensed content.

With around $17bn spent on content in 2023, Netflix might reduce this expense while still expanding its catalogue with premium, although old, content.

Beware, this is not reciprocal! According to Netflix’s executives, there’s more value in acquiring licensed content, than to sell it. So don’t expect “Ozark” to stream anywhere else.

Also, ad revenue is increasing and projected to represent up to 22% of total revenue in 2027. With this, Netflix won’t have to fight for new subscribers, but rather will extract more value from existing users.

If we add to the mix the recent $5bn deal to livestream WWE, we get the perfect recipe to declare Netflix as the winner of the streaming war.

However, streaming remains a costly and hit-driven business. When compared to YouTube, which spends virtually nothing on content, streaming looks way less appealing.

Stay tuned!

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