Commentary by Gabriel Smith, Campus Carrier asst. arts & living editor

Roughly a decade ago, some observers predicted that cable television was past its prime and that new internet streaming services like Netflix were set to take its place. However, as the streaming market has continued to develop over the past decade, many early predictions have not held completely true.

There are now more streaming services than ever on the market. Consumers looking to stream movies and shows have a choice between various wide-base services, like Netflix, Hulu, Amazon and Apple TV, as well as narrower, genre-specific platforms, like Shudder for horror and Crunchyroll for anime and manga. If one is looking for access to a variety of popular programs, they are increasingly likely to need more than one subscription; for some consumers, the monthly cost of streaming services may be approaching, or even exceeding, their old monthly television bill.

In a 2019 survey of about 2000 American consumers by Deloitte, an international accounting and research firm, 47 percent of respondents reported feeling frustrated that they needed more than one streaming subscription to watch their desired shows, and 57 percent said that they experienced problems with shows being taken down from streaming platforms. Unfortunately, the streaming market currently shows few signs of consolidation: according to Deloitte’s most recent Digital Media Trends survey, the average American consumer now subscribes to 12 different streaming platforms, and 25% plan to subscribe to additional services in the next year. As more and more providers enter the market to help meet consumers’ demand, they will likely compete to purchase rights to already-existing shows and movies, leading those works to be removed from their existing platform and presenting consumers with the question of whether to keep their streaming service or their show, or pay more to keep both.

The COVID-19 pandemic has also thrown another variable into the question of the streaming market. This spring, fueled by increased memberships due to various pandemic lockdown mandates around the world, Netflix reported positively quarterly free cash flow (meaning it received more cash than it spent) for the first time since the second quarter of 2014. However, Netflix CFO Spencer Neumann told investors at the time that the company expected to achieve positive free cash flow that quarter regardless of the pandemic, and cautioned that he expected the company would continue to regularly report negative cash flow for some years to come as it continues to invest heavily in original content.

According to quarterly earnings reports, Netflix posted a cash flow loss each quarter from mid-2014 until April 2020, owing to its heavy debt-financed spending on original content production. As Neumann and others have explained to investors before, the company’s general approach relies on convincing investors that their platform has staying power as a popular streaming service, then using investors’ funds to finance original, Netflix-owned productions which could potentially help generate new subscription revenues for decades after they are released. In the short-run, the company worries far more about usage and market share than about profit or loss on cash flow.

Given the natural unpredictability of new markets and the uncertainty introduced by the pandemic, it is difficult to assess how Netflix and its competitors will perform in the long run. While subscription revenues are up now, they may fall back down to pre-pandemic levels, which are still substantial, or even lower, especially if a sustained economic downturn follows. If Netflix resumes production activity in 2021 and faces unexpectedly lower subscription revenues, it could face a larger cash flow loss than expected, further delaying its “multiyear” path to routine positive cash flows. Other companies may see their fates determined by whether or not they can successfully differentiate themselves from their hundreds of competitors and stand up to giants like Netflix, which can use their relationships with investors to tolerate large investments and short-term losses in ways that smaller companies simply cannot afford. For consumers, market consolidation seems to be as far away as ever, as long as smaller streaming companies maintain their revenues and Netflix retains its investors.

Posted by Campus Carrier

One Comment

  1. […] “Pandemic causes boom in streaming services” […]

    Reply

Leave a Reply