Netflix Q1 results: industry commentary

The arrival of Disney Plus in the UK, alongside Sky’s Now TV, Amazon Prime and more has put pressure onto Netflix to retain subscribers and quell existing competitors. However, Netflix has once again flexed its muscles as the first streaming giant to define the market; investing in its formula to create shows that dominate popular culture, from high-end productions such as Stranger Things to cult favourites like the Tiger King documentary which generated 34 million viewers in just ten days. These shows all have one thing in common: becoming must-watch TV for millions around the world instantly.

Fundamentally, Netflix must continue creating compelling content that audiences are willing to pay for and not willing to miss – but this comes at a substantial cost. Netflix’s commitment to never advertise may place it at odds with competitors that have far deeper pockets to fund studio productions, something that Disney has been doing for decades.

And while Disney’s back catalogue of films and shows won’t be enough to take on Netflix alone, newer shows like The Mandalorian have proven that it can stand-up to the task of creating loyal, devoted fans. Whether Netflix’s commitment to never bow to advertisers holds firm, at the end of the day viewers will only invest their time and money if it is outweighed by awe-inspiring and unmissable content.

This time last year Netflix was entering the most turbulent period of growth in its existence, missing new subscription targets in Q2 and Q3 2019. The subsequent narrative has been about the streaming wars, speculating how Netflix would struggle to maintain its dominant market share once rivals, such as Disney+ and Apple TV+, appear on the scene. Whilst this will likely still be a long term challenge for Netflix – especially given the success Disney+ has had in its relatively short lifespan – COVID-19 has strengthened its position in the streaming wars.

It’s inevitable that SVOD services are going to perform strongly with people at home, but first mover advantage has really played into Netflix’s hands as they are the go-to streaming service for new subscribers. Its rivals have huge archives of content, but Netflix’s existing library dwarfs anything else in the market, making it extremely attractive for those with time on their hands.

There is no doubt that Netflix has been helped by the viral sensation that is Tiger King and also new seasons of Narcos Mexico, Ozark and Money Heist – which are all Netflix originals favourites. The challenge in continuing to grow and also preventing churn is likely to be how long they can sustain dripping in new series with production studios shut for the foreseeable future.

As Netflix finds its way into new homes, the key post pandemic will be staying there. This is where status quo bias comes into play, as people tend not to change an established behaviour, unless the incentive to change is compelling. Essentially, consumers will become so used to having Netflix as an option for content that they will keep it there until there is reason to change – for example a substantial price increase.

The full impact of COVID-19 remains to be seen, but as many of the countries with large streaming audiences – such as the USA and UK – only went into lockdown in March, Q2 could yet see further growth for Netflix and its counterparts.

Streaming services are proliferating, but despite fierce competition, Netflix’s latest results show that they are still on top. Naturally, the global lockdown has meant more people than ever are tuning in to TV content and taking out streaming subscriptions. It’s likely due to both its heritage as a platform and breadth of content on offer that Netflix is taking a large slice of that new subscriber base.

Our TGI data shows that most consumers who pay for online streaming don’t pay for more than two or three subscriptions, and Netflix remains the most popular option. But as we emerge from the COVID-19 pandemic, and advertising budgets rise again, subscription platforms will need to foster strong USPs so as not to lose a percentage of their audience to ad-funded challengers.

For Netflix, their wealth of content and the success of shows like Tiger King no doubt provide that attraction now, but they will need to continue to closely monitor and understand what interests and excites their users to retain – and grow – their subscriber base through an economic downturn.

In these uncertain times, TV has truly returned to its place at the heart of British homes, with the nation coming together – albeit virtually on Netflix Party – over Joe Exotic’s crazy antics in Tiger King and risky romance in Love is Blind. With the vast majority of the population stuck at home, people are turning to TV streaming in their droves for distraction from the outside world, providing an invaluable opportunity for brands to connect with audiences.

Netflix’s results demonstrate that this trend is undoubtedly good news for the company in the short term, but will this boon only last as long as the lockdown? It is vital that Netflix considers its long term strategy if it’s to retain its dominant market position against an ever-growing number of competitors.

And with economic uncertainty leading to the tightening of many consumers’ purse strings, Netflix will need to work hard and fast to top up its library with new, quality programming to convince viewers of its ongoing value as life returns to normal. The cost of doing this will be significant, and nothing offers Netflix the same monetary potential as advertising, whilst also offering cash-strapped consumers the possibility of accessing content at a reduced rate – or even for free.