As media giants begin raising the curtain this week on their second-quarter financials, the numbers are expected to show signs of growing pains for fledgling streaming platforms and signs of maturity for Netflix and other established players.
Results for the quarter that ended June 30 also mark the first earnings cycle to lap the start of the COVID-19 pandemic in March 2020, meaning that year-ago comparisons will be for operations also conducted in extraordinary conditions. The economic picture in the U.S. overall is much better than it was this time last year, but Big Media is undoubtedly heading into a tougher competitive landscape in the one business metric that matters most to Wall Street right now: subscriber growth.
Investors want to see Disney, Comcast, ViacomCBS, AT&T, Discovery and others adding subscribers or monthly active users in order to justify their huge expenditures on content and platform launches. All of the major conglomerates are pouring billions of dollars into original content and forgoing sales in order to feed internal platforms. This transformation has been messy, as evidenced this week by the exhibition sector blaming the near-simultaneous Disney Plus streaming window for the second-weekend box office “collapse” of Marvel’s MCU feature “Black Widow,” or the talent relations damage done by Warner Bros.’ decision to go day-and-date with streaming and theatrical premieres for the studio’s 2021 slate.
Disney Plus, HBO Max, Paramount Plus and Netflix all added subscribers at a heady pace in the spring of 2020, when the reality of a long homebound period was just starting to settle in. That timing could not have been better for accelerating Disney Plus and HBO Max, and buoying Netflix, Amazon Prime Video and Hulu. But the go-go growth couldn’t last forever. The pandemic is not over — as evidenced by the Dow’s 900-point plunge this week on rising COVID rates — but the isolation of lockdown largely is. For Americans, demand for adding new subscription video services to the household entertainment budget is clearly slowing.
According to newly released research from Kantar Media, only 3.9% of U.S. homes added a new subscription streaming service in the quarter, down from 12.9% a year ago, which marks the largest drop in several years. According to Kantar, 74.6% of U.S. households (about 95.8 million) now have at least one streaming video subscription.
Kantar’s research demonstrates that for now, Amazon Prime Video is winning the subscriber acquisition war, thanks in no small part to the perk of two-day shipping that comes with joining Prime. Amazon accounted for an estimated 24.2% of new SVOD subscribers in the quarter, followed by HBO Max (12.5%), Disney Plus (11.6%), Discovery Plus (9%) and Netflix (8.4%), per Kantar research.
Netflix’s slowing rate of domestic growth – it lost 430,000 subscribers in the U.S. and Canada in the second quarter — explains why the global streaming leader is taking steps to add streaming video games to its platform. This will mark a major new iteration for the company that has prized itself on keeping focused on the needs of its “members,” which now number 207.6 million around the world.
Netflix had kept quiet about its plans other than to confirm its hire of former Facebook and Electronic Arts executive Mike Verdu as vice president of game development.
The video game industry is already moving aggressively into subscription video platforms and virtual live experiences that span borders. Netflix is as well-positioned as any media company to capitalize on this boom.
“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” Netflix co-CEO Reed Hastings wrote in his July 20 letter to shareholders, noting that Netflix will not charge extra for access to games. “We’re excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories, but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games.”
Just as for Netflix, the focus for Wall Street analysts in the second-quarter results will be on subscriber growth rates, content-spending plans and what the slowly emerging post-pandemic period holds for disparate business units ranging from broadband to theme parks to iPhones.
After Netflix, AT&T is next up to report on July 22. Comcast and Amazon report on July 29, followed by Discovery (Aug. 3), ViacomCBS (Aug. 5) and Disney (Aug. 12).
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