Our rush to replenish our social interaction diet will see eateries, pubs and clubs make an instant resurgence once restrictions are lifted, but the Covid-19 pandemic has produced extremes in terms of commercial winners and losers.
Perhaps the travel and tourism industries are in the unenviable position of biggest losers, but streaming services are undoubtedly the big winners as isolation draws our attention to escape through entertainment. It’s no surprise Netflix is a big winner in this category, it’s growth reflected in Netflix stock, the price of which has been climbing since mid-March.
Earlier this year I commented on the Netflix Earnings for Q4 2019 and their projections for the 2020 year, taking a contrarian position to the analysts at the time who were expecting Netflix to struggle to get the seven million new subscribers forecast for Q1. The analyst’s doubts were largely fueled by the competitive effect of Disney’s international expansion which began early this year. I took the position that the global market penetration Netflix had already established was not an advantage easily surpassed or assailed.
As it turns out, the global pandemic has provided Netflix with its strongest ever quarter for new subscribers adding 15.77 million paid subscribers globally in Q1 taking their total global subscriber numbers to 182.86 million. That’s a nice result that translates to US$709 million in first-quarter earnings versus US$344 million for the same period 2019.
For those concerned about the billions of dollars Netflix is investing in content creation, knowing their revenue grew 26% to US$5.77 billion from US$4.52 billion in the same period a year ago, should give some comfort. Indeed, that result seems to have inspired investors with their shares closing at a record high of US$437.49 on Monday, consequently valuing the company at more than US$191 billion. In fact, Netflix shares are up 34% in the year to date while Wall Street is down 15% after a 3% slump on Tuesday.
Simultaneously, the hours in lock-down with kids has also helped Disney+ gain a foothold of close to 30 million subscribers. Still, although Covid-19 has offered an unexpected boost to both streaming services, particularly the more established streamer Netflix, the latter is not focused on competitor activity (unlike the analysts).
Disney is calling back its titles from Netflix, which in the long term could be a competitive advantage, but Netflix and Disney+ viewers share similar profiles, so it’s the content that makes the distinctive for each.
Disney+ targets family viewing, which’s great for them because there are families worldwide who want to watch TV together or at least have their kids babysat by safe TV. Many would say that Disney content is timeless, but I’m not sure if that’s just a nostalgic opinion of parents over the reality of what kids tune in and respond to today. As time marches on, Disney’s contemporary overhaul will become more critical to its market appeal.
Netflix targets every household viewer, with the intention of having a solid range of viewing alternatives to please all demographics and personal tastes. Netflix is also fixated on creating an independent library of quality content, satisfaction in user experience and the marketing features afforded by technology and their connection to the subscriber.
Its momentum focuses on the core value proposition to customers (which is multi-dimensional and omni-channel solved) that is their most significant competitive advantage. It’s also ad-free for subscribers which makes for an uncomplicated sales proposition.
Their content is established as quality creative with high production values, increasingly original and locally flavoured. Their UX is geared to personal preference through intuitive technology that gets more effective as viewing hours amass, by individuals and content profile. Their established revenue streams, considerably now boosted by the viewing public’s circumstances created by the Covid pandemic, provide the power to attract and secure the best resources, consolidate growth and indulge experimentation with innovation that might further enhance UX and content.
In summary, the Covid-19 pandemic has been a gross inconvenience, a devastating disease for some families and indeed many businesses. Still, it has been a happy accident for the content streamers well prepared to sate the appetite for new entertainment that isolation breeds.
From an investment perspective, Netflix might be a difficult share to purchase at US$437, but better buying might be found in the businesses who service Netflix in their content production and technology?
If you would like to know more about the broader effects of Covid-19 on streaming content, contact Wanted Consulting – Reward Offered.