Judgement Day For Netflix
No doubt about it, Netflix has had a hell of a run. If you were brave enough to buy Netflix stock in 2012, during the dog days of their CD mail order business, you would have realized an 8,800% return on your investment. Netflix rose to the top of the video streaming space by distributing Hollywood content. But in this very moment, with today’s launch of Disney+, Hollywood is taking its content back. So what does this mean for the future of Netlflix?
First, a little backstory on how we got here. As you can see in the graph below, the vast majority of Netflix’s content is temporarily licensed from movie studios and TV networks. As Netflix became more successful, the content owners got wise and started charging more and more to keep their content on the streamer. As an example, Netflix paid a record $100M to Warner Bros to keep the sitcom Friends for 2019, which was triple the price tag from 2018.
Now many content owners including Disney, HBO, Viacom, etc. are beginning to pull content completely off Netflix as they launch their own OTT streaming services. According to the Hollywood Reporter 45+ movies and TV shows have left Netflix in the last month alone, including blockbusters like The Imitation Game and Despicable Me 3. Industry estimates are that Netflix could lose one-fifth of all licensed content within the next two years. That much product degradation could make it very hard to keep subscribers on board.
On the other end of the spectrum Disney+ is launching today with 7,500 TV shows and 500 movies. That’s 10x more content than Netflix has original shows . . . all for $6.99/mo, which is half the cost of a Netflix sub. Industry estimates are that Disney+ could have 60-70M US subscribers a year from now. I wonder how many of those will be former Netflix customers?