Analysis of Netflix Stock is focused on answering this question: It loses 200 million subscribers in the first quarter of 2022. The streaming giant plan to launch an ad-supported program to cut the expense and offer lower subscription fees for the customer. Will this decision help company to regain or at least retain its customer?
Chapter 1: Streaming doesn’t eliminate the competition.
Analysis of Netflix Stock makes us conclude that new technology doesn’t always create barriers to entry.
To answer that question we need back to the early glorious days of Netflix. What makes the Calif-based company could disrupt the industry? First, it offers a budget plan to access a vast array of libraries or content. In comparison, it needs about $200 per month to have a Netflix library if you buy from cable.
The second is of course it has very good original content (House of Cards, Queens Gambit, etc). The third is the experience: No ads and cross-platform. All of these offers are superior to TV and movies.
Problem is, shortly speaking, at the end of the day, everyone could deliver its streaming services. Apple, Amazon, Disney. They could come up with a similar plan, and the worse is, that they do not need to be profitable for the streaming segment. Because these companies rely on their ecosystems to deliver money. Apple TV to enhance the iOS or iPad OS experience, Amazon could bundle up the Amazon Movie to its Amazon Prime subscription, and Disney could stream its magical show to boost theme park visits and merchandise sales. Netflix is simply the pure player against all these edges.
Now check, do Netflix’s strategy to launch the ads-supported format will help against the competition?
Move to the second problem. Netflix original is great – the stranger things for instance. But, to offer the best value to the customer mean streamer needs to have a vast library. And Netflix does not has it exclusively. The loss of the FRIENDS franchise is evidence that Netflix could not retain the content forever.
Even when ads supported plan delivers a lot of cash, they can do nothing about this intellectual property.
The third is the game over. everybody could also launch its ad-supported services, at the end of the day.
- It is a bit funny when we remember that Reed hasting (Netflix CEO) was always at the side against the ads. Now, what he hates becomes the lifeline for the company.
- HBO and Disney are ready for the ad-supported streaming plan.
Read also: innovation doesn’t guarantee economic moat.
Chapter 2: how to play the ads game?
Analysis of Netflix stock involves ads, thus we need to mention the great duo: Google and Meta.
So, everyone could make streaming services. And everyone could join the ads-supported format also. Now, how to win this kind of battle royal? especially when the competitor is much stronger, fiercer, and hungrier.
Ask Google and Meta.
Facebook and Google are the best company dealing with ads. So it makes sense if any other platform, including streaming, follows their path of success when it comes to ads. Or at least, replicate them at some level.
The key factor is simple. Google and Meta have access to billions of people. Google offers search engines at the beginning to attract people (1). Meta (formerly Facebook) offers social media that could connect you with all of your relationships. Both come at a free cost and all of us love that. Then Google and Meta create ads based on our activity in their ecosystem.
Does Netflix have these characteristics?
Could Netflix stream some free videos and then monetize some ads from the people who watch that videos? Oh, I know someone who can do that. YouTube.
Could Netflix’s ad-supported streaming program replicate that business model?
- In the end, Google transforms itself into a platform or ecosystem company. It is a super platform. By having a Google account, you could access android, email, office suite, games, etc.
Chapter 3: TV emulates Google and Facebook
Back to the old days.
The most important element of Meta and Google is free. From that free come mass attraction. This reminds us of our old friend: TV.
After a long way from old tech to streaming services, we are back here again. When come to ads, TV surely has no match. It offers free content that attracts people then the conversation about ads becomes easy.
So, what’s now? What do we have?
The obvious is, that Netflix has no edge compared to its ecosystem-boosted rivals like Amazon Prime or Disney plus.
Then, Netflix also can’t create a vast network that connects people and insert the ads there like Meta or Google.
It also can’t go back into TV mode.
In conclusion, we don’t see a fine situation for Netflix.
Read also: https://investingdeck.com/netflixs-competitive-advantage-is-losing/