Netflix's dominance slows as rivals gain

New York

NETFLIX still rules the streaming universe. As of the end of March, it had 207.6 million total paying subscribers, with about 67 million in the United States, the company noted in its latest earnings report. But its main competitors - Disney+, HBO Max, Paramount+ and AppleTV+, as well as old-guard streamers Amazon Prime Video and Hulu - have cut into Netflix's share of viewers' attention.

The global demand for original Netflix programmes, such as the much buzzed-about romance series Bridgerton from super-producer Shonda Rhimes, has started to drop relative to similar offerings from newcomers, said Parrot Analytics.

The data firm has developed a metric to rate not only the number of viewers for given shows but also their likelihood of attracting subscribers to a streaming service. In its latest rankings, Parrot reported that Netflix's share of total demand - a measure of the popularity of its shows - was slightly above 50 per cent for the first three months of the year, compared with 54 per cent a year ago and 65 per cent in the first quarter of 2019.

Competitors have started eating into Netflix's dominance, as evidenced by the numbers. For Q1 2021, Netflix reported four million new customers - below its forecast of six million. The company expects to add only one million new customers for this current quarter. Netflix shares plummeted about 10 per cent in after-hours trading on Tuesday, after the earnings announcement.

"We don't believe competitive intensity materially changed in the quarter," Netflix said in its letter to shareholders. Led by co-chief executives Reed Hastings and Ted Sarandos, Netflix pulled back on productions during the pandemic, which has now rippled into its release schedule. The company did not have any big returning series in the period.

Netflix also raised prices in October, increasing its standard plan by one US dollar to US$14 a month. It added an extra US$2 to its premium tier, which now costs US$18.

The company typically increases its fees about every 18 months. It is also trying to clamp down on password sharing, long a common practice. In the same period last year, as the pandemic was underway, the company added a record 15.7 million subscribers. As much of the world went into lockdown, people turned to screens to while away the hours. Netflix recorded a jump in new sign-ups, leading to a record year of nearly 37 million new customers. It is unlikely to repeat that performance for 2021 as restaurants, stores, cinemas and sports stadiums start opening up to full capacity across the US.

But Netflix is an international business. The majority of its revenues now come from overseas, and it has banked its future growth on emerging markets such as India and Latin America. Those regions have had recent surges in coronavirus cases, prompting new lockdowns. Most of the world, including Europe, has not vaccinated its citizens as quickly as the US.

The streaming company is still spending big. It spent US$465 million to buy two sequels to 2019's hit whodunit Knives Out - a price tag 50 per cent higher than the first film's gross receipts and 10 times what the film cost to produce. Director Rian Johnson came up with the idea for the film; he and his producing partner control the rights.

The lucrative deal is in keeping with Netflix's expensive courtship of Hollywood creators. It has nine-figure agreements with prolific producers including Rhimes and Ryan Murphy, as well as actor-producer Adam Sandler. Johnson could join their ranks, creating additional series and films for the company.

Despite Netflix's push into owning its own content, it recently entered into a distribution agreement with Sony Pictures Entertainment, the last major Hollywood studio not tied to any streaming business. Netflix will have rights to some Marvel franchises, including the Sony-controlled Spider-Man, and several offshoots based on the character.

The company reported profit of US$1.7 billion on revenue of

US$7.16 billion for Q1. Investors were looking to US$1.3 billion in profit on US$7.1 billion in sales. In addition, the board of directors approved a US$5 billion stock buyback plan, which should lower the number of available shares in circulation, potentially making them more valuable.

Although competitors are gaining ground, Netflix is in its best financial shape yet. It hit a milestone at the end of last year when it said it would no longer look to borrow money to fund its content slate.

Netflix finally became a truly profitable business after topping 200 million subscribers, each paying an average of US$11 a month. In other words: Its competitors are still losing lots of money on streaming. NYTIMES