Ignition Dimension (ID: chaintruth) original
Produced by Burning Finance
Author | Kong Yuexin
Edit | Rao Xiafei
Streaming media "carry handle" Netflix's life is not good.
In the early morning of April 20, Beijing time, Netflix (NFLX.O) released the first quarter of 2022 financial report, and the final result can be said to be an "epic overturn".
For Netflix's most concerned core indicator "the number of new global subscribers", according to the financial report data, the net increase in subscribers in Q1 2022 is far from reaching the previous "low" growth expectation of 2.5 million, and the global new paid user data is also 200,000 lower than the same period last year, which is also the first time in Netflix's nearly 10 years that the net growth of users has been negative.
At the same time, Netflix also gave its expectations for the second quarter of 2022, and the net increase in paid users will reach -2 million. Compared with the rapid growth of previous years, the slowdown in Netflix's growth has foreseen the ceiling of platform users.
In addition, Netflix achieved revenue of $7.868 billion in the first quarter of 2022, an increase of 9.8% year-on-year, and the growth rate has also slowed significantly compared with recent years, and the Q2 revenue growth guidance is expected to be about 10%; the net profit attributable to the mother is $1.597 billion, down 6.4% from $1.707 billion last year; and the net profit margin has also fallen from 23.82% in the same period last year to 20.3%.
This "report card" is obviously not acceptable to investors, and once the financial report was disclosed, the secondary market immediately gave negative feedback on it. On April 20, 20, Netflix's stock price plummeted at the opening of the market, falling to $212 per share, the lowest value since the end of March 2018, and the market value instantly evaporated by more than $40 billion, equivalent to hundreds of billions of yuan. As of the close of us stocks on April 21, Beijing time, Netflix closed at $226.19 per share, down 35.12%, with a total market value of $100.4 billion.
Chart/Netflix stock price movement
Source/Tiger Brokers Screenshot of Burning Finance
At the same time, Netflix's competitors such as YouTube, Amazon, Hulu, Disney+, etc., are also constantly increasing their content investment, trying to "disrupt" the game of the streaming media market, which has also brought greater growth pressure to Netflix.
Under the "internal and external troubles", Netflix announced that in the case of slowing revenue growth, it will take the protection of operating profit margins as the goal in the next few years, and will also reduce some content and non-content expenditures, which means that Netflix has also entered the stage of "cost reduction and efficiency increase". In addition, the financial report meeting also showed that Netflix will no longer adhere to the "de-advertising", and will try to develop advertising models in the future to meet the needs of price-sensitive users.
Growth peaked, peer volume, cost reduction and efficiency increase, advertising... Netflix's situation and various countermeasures make people feel that "the soul wears" Ai Youteng, and the Netflix membership payment model that china has been yearning for seems to be unable to adhere to; and the parallel model of membership + advertising, Aiyouteng has not yet run through. Next, how should the long video platform go forward?
For the first time in ten years, membership growth was negative
Judging from Netflix's 2022 Q1 financial report, its data performance is not useless, at least revenue has maintained growth, but the return to "single-digit" growth after slowing down also means that the streaming media dividend brought by the epidemic is fading.
In this regard, Zhang Yi, CEO of Ai Media Consulting, believes that "the attitude of European and American countries to the 'lying flat' of the epidemic will make users in the region carry out more outdoor activities, and the audience will return to the cinema to a certain extent." This will also lead to Netflix's development trend for a whole year. ”
Although Netflix attributed the decrease in membership to the Impact of the Russian market to some extent in its earnings report. However, in Zhang Yi's view, the impact of the Russian market is very limited in objective factors, because Russia only has hundreds of thousands of users, and the slowdown in streaming media growth in the post-epidemic era is the main reason.
At the same time, in order to stabilize the growth rate of revenue, in January this year, Netflix once again raised the "subscription price" of monthly subscription users in the United States and Canada. Although from the financial report, Netflix's revenue in the North American market rose to $3.35 million from $3.17 million in the same period last year.
However, from the perspective of user data, the rising membership fee makes the decline of Netflix in the North American market particularly obvious. The number of new paid subscribers in the U.S. and Canadian markets decreased by 640,000 compared with the same period in 2021, and the number of new subscribers in Europe, the Middle East, Africa, and Latin America declined across the board year-on-year, with only the Asia-Pacific region maintaining a growth of 1.09 million.
Photo/ Netflix earnings report
Source/Burn Finance Screenshot
Secondly, Netflix said that the current user group of the platform is composed of paying users and unpaid groups that share other people's accounts, and there may be more than 30 million accounts shared in North America alone. In the earnings meeting, how to leverage consumers who share accounts has become an important issue for Netflix, "Our goal is to make members pay a little more when sharing with outsiders." ”
Although Netflix has previously done account sharing tests in some regions, it is still unknown whether this method is accepted by users. More netizens believe that the continuous decline in Netflix's stock price is also related to the release of news to crack down on sharing accounts.
"User habits have terrible inertia, from free to charged, from unlimited to restricted, itself will encounter a nerve-wracking transition, coupled with the impact of short videos, high content copyright fees, and spoiler piracy and other rampant, streaming media is naturally difficult to develop."
In addition, disney, Amazon, Apple and many other giants have cut into the streaming track, which will also affect consumer choice and investor confidence.
Bloomberg said that in terms of net new user data, Netflix may usher in the worst year in its history since its listing. "This means that investors need to adjust their expectations for the growth of streaming media platforms, and Netflix can no longer grow as 'like a bamboo' in the past." Zhang Yi said.
There are blockbusters, but Squid Games is not often available
The peak of user growth has become an irreversible trend, and all streaming media platforms, including Netflix, are facing how to activate the stock market and find new growth points.
After the global explosion of "Squid Games" last year, the rapid growth of subscribers perfectly proved the attractiveness of high-quality blockbuster content to users, as well as the improvement of membership usage, satisfaction and renewal rates.
According to the financial report, the second season of "Brigetton Family" is still the longest-watched English drama in Netflix's history, and "Creative Anna" is also excellent. The ratings of the documentary "Tinder Fraud King" and the movie "The Adam Project" are not weaker than the "Red Notice" and "Don't Look Up" in the fourth quarter of last year. But these film and television works did not bring Netflix the surprise (user growth) of "Squid Game".
In addition, the Korean market, which is highly valued by Netflix, launched several blockbuster works in the first quarter, and did not reproduce the glory of "Squid Game". For example, "Juvenile Court" ranked 45th in the world in terms of playback; "Twenty-Five, Twenty-one" ranked 44th, and the reputation collapsed due to the forced BE in the later stage; "Zombie Campus" although the highest number of plays, but the score is very low, which is really the bottom of Netflix's works.
Photo/ Stills from "Twenty-Five, Twenty-One"
Source/Douban
This also means that in the content moat, the first Netflix does not occupy a complete lead. In Zhang Yi's view, the advantages of established content companies such as Disney+, Warner in content selection and resource reserves are very obvious, and the recognition of the audience is also very high, representing its strong box office appeal. So for Netflix, his first-mover advantage will undoubtedly be challenged.
Since the fourth quarter of last year, Netflix's relative weakness in content performance will make competitors unceremoniously continue to divide the cake of the streaming media market and grow rapidly. According to Disney's 2022 quarterly financial report, Disney+ increased its subscriber count by nearly 12 million to 129.8 million in the first fiscal quarter. Netflix's membership growth rate in the same period last year was 8.3 million, which means that in the last three months of 2021, Disney's user growth has surpassed Netflix.
Parrot Analytics also shows that under the fierce competition in the streaming market, Netflix's content market share has dropped from 51.4% in the first quarter of 2020 to 43.6% in the fourth quarter of 2021, while the market share of rivals Apple TV, HBO Max and Disney+ has grown from 13.5% to 21.4%.
"On how to improve the content, we've been improving big movies for the last few years. Examples such as Don't Look Up, The Red Notice, and Project Adam are examples of this. Netflix said at the earnings meeting.
However, although Netflix has been working in the film field for many years, its films are not as "satisfactory" as long dramas.
From the perspective of shooting cost and output effect, the "cost performance" of the film is obviously low. Last year's Q3 episode "Squid Games" cost $21.4 million, while the Q4 movie "Red Notice" cost $200 million. With the production cost difference of nearly ten times, some media reports said that "Squid Game" occupies ten times the viewing time of users than "Red Notice"; and "Red Notice" is unlikely to reach ten times the attraction of "Squid Game".
In addition, compared to other companies' films, "Red Notice" has not been able to stand at the top of the industry. In the "Top 10 Most Searched Movies in the World" list, Netflix accounted for 2, and the remaining 8 were from companies such as Disney.
The performance of the "rising star" is not weak, this year Apple TV + won the Oscar for best picture with "Sound-sounding Girl", thus becoming famous in a battle, which also caused a dramatic situation of "Netflix worked hard for many years, but was picked up by Apple TV+ to take away the fruits of victory".
This is also the embarrassing situation that Netflix is currently facing, with the user market share decreasing, that is, the consumer's preferred platform is diverted by other companies. Before film and television companies decided to do streaming media themselves, the copyright of many film and television content was on Netflix, but after content companies such as Disney and Warner made their own streaming media, the copyright was naturally taken away.
"For Netflix now, it needs to produce better content and provide more favorable prices to compete with its peers." Zhang Yi said.
Netflix wants to advertise, long video "drive backwards"?
The performance and stock price collapse caused by the peaking of Netflix's growth is also the current situation faced by long-term video platforms such as IYoteng in China. This also inevitably makes people question the commercial model of streaming media platforms: paid subscriptions and advertising businesses are not enough to alleviate the cost and revenue pressure after user growth.
At the same time, the competition in the streaming media market has become more and more fierce, mergers and acquisitions, increased investment, and become an important way for giants such as Amazon to achieve breakthroughs. In this regard, Zhang Yi believes that the performance of Netflix's rapid market value growth over the years has made it difficult to find new ways to earn new revenue and stimulate investor growth points; secondly, long videos can pull new and retain users for these giants, which is a cheap way to obtain traffic for their main business.
"For Netflix, user growth has peaked, and continuing to do so could be a negative growth from 100 to 99. But for other giants, it is developed from 0 to 80/90 space, and is currently in the incremental market stage of net growth. Zhang Yi said.
This is not only the embarrassing stage that Netflix is in, but also the dilemma faced by domestic video platforms such as Aiyouteng.
However, compared with the advantages of Netflix's high-quality content and de-advertising, domestic video platforms such as Aiyouteng have been criticized for their membership + advertising model.
In the view of Zhao Hongmin, an Internet analyst and content creator, for non-members, the pre-video ads are continuously extended, some even up to 90 seconds, and there are also a large number of ads during the video playback. Needless to say, every user is inherently resistant to watching ads, but video sites find a balance between advertising revenue and user experience, which also leads to the platform to make another nesting doll charge for members.
Therefore, Zhao Hongmin is not optimistic about the prospects of the advertising model, "I think the proportion of advertising revenue in the long video platform will become smaller and smaller, because the user's requirements for the viewing experience are constantly improving, they will become more and more difficult to bear to jump out of the advertisement when watching video, and the proportion of paid members will continue to increase." In addition, I think that in the future, the boundaries between long video and short video websites will become more and more blurred, and long and short video websites will continue to seize each other's market share. In terms of content production on video platforms, the continuous integration of UGC and PGC is also a major trend in the future. ”
But helplessly, Netflix currently seems unable to stick to its "de-advertising" revenue model. From the current experience, the model of using high-quality content to attract users to pay - subscription fees cover content production costs - avoid advertising monetization cannot bring stable growth to Netflix in the future.
In this case, Netflix urgently needs to develop new ideas for business development. But whether it's a game business that's already in progress, starting to develop other businesses in the content space takes time and cost. In order to win back the confidence of consumers and investors, advertising should be the most "cost-effective" way to solve the current growth dilemma.
Previously, Netflix CEO Reed Hastings said that Netflix is now "quite open" to lower-priced subscription plans that provide advertising support, and does not rule out the possibility of launching an option with an advertised version. At this earnings report meeting, Netflix also said that it will gradually promote the realization of advertising models in the next few years, providing lower price plans for consumers in need.
Zhang Yi agrees with Netflix in the advertising model to test the waters, "in the case of the user market is difficult to fundamentally change, Netflix to try advertising or a good way." Because I think there should be a difference between the advertising model of Netflix and Youaiteng. Because most of the members that Netflix attracts with high-quality content are members with strong payment ability and very clear at the level of entertainment portraits. For advertisers, this is Netflix's seller's market; not a buyer's market for domestic video platforms. ”
Resources:
"One Night Plunge 25%, Netflix Logic Collapses", Source: Longbridge Dolphin Research;
Compromise with the Advertising Model? Netflix delivers the worst report card in a decade", source: AlphaS;
"Netflix and Youaiteng have the same disease", source: Value Institute;
"Streaming Movies, the Battlefield Is Far More Than oscars", Source: Poison Eye;
"Disney Q1 earnings report is better than expected Disney+ new subscribers super Netflix stock price rose 8% after hours", source: Financial Associated Press.
*The caption and some of the inner text illustrations are from Visual China.
*Disclaimer: In no event shall the information herein or the opinions expressed herein constitute investment advice to any person.