There is no question that Netflix has changed the entertainment industry. From having its own specials to hosting other networks content on their service, Netflix has attained 150 million users. From children to senior citizens, everyone seems to be using Netflix as their desired platform for entertainment. The idea behind offering ad-free entertainment seemed almost inevitable ever since cable television has abused its market share and forced advertisements to consumers at ridiculous rates. This is how Netflix attained its user base. But instead of growing their platform, Netflix might see a reduction in their users as more companies enter their sphere.
Disney, the producer behind many popular franchises such as Star Wars, Marvel, and Cinderella has taken a majority stake in the popular streaming service Hulu. This would allow Disney to pull all of its licensed content from Netflix and move it to Hulu, which would generate more profit for Disney as the company would sidestep the middleman, Netflix. This poses a huge issue for Netflix as many popular movies and shows on Netflix are going to be, or already have been, pulled from their service. Shows like Daredevil have been canceled despite their popularity amongst many Netflix users. With more and more shows being pulled from Netflix, users will start to seek alternatives such as Hulu and other future streaming platforms.
The one thing that Netflix does have going for it is its popular originals such as House of Cards (was), Big Mouth, and Narcos. However, these shows are very expensive to make and we have started to see Netflix move away from being a technology company and morphing into a production company. The executives of Netflix realized that the barriers to entering the streaming service are very low for producers such as Disney and Fox, so they have decided to start making their own content in order to preserve their market dominance.
Recently, a financial analyst at JP Morgan said that Apple should consider buying Netflix for a 20% premium of the current market capitalization. This would fit well with Apple’s intention to grow its service revenue streams as it could start to launch its own original content. However, I believe that Apple can better utilize its $245 billion cash pile than buy Netflix. It could invest that money into developing its own service and sell it at a discount to iPhone users. Apple, despite its declining revenue, has a stranglehold on the smartphone market as the company has made it very hard to transfer data between phones that run IOS and Android. Apple could capitalize with its cash and jump-start a streaming program. However, it would have to have benefits that Hulu and Netflix do not offer, like a smaller subscription fee. Apple will soon enter the streaming market in order to increase its services revenue as demand for new devices deline.
One player that has not gotten much attention is Amazon. Amazon’s streaming service is unique in the fact that you still need to buy the movies and shows that it offers. However, Amazon’s platform offers the newest shows and movies, which, for many users, offsets its steep costs. It targets the audience that is less patient for the movies and shows to be ported to Netflix or Hulu. Amazon is less of a threat, but it does allow people to buy or rent a single movie with an upfront and one time cost. Amazon has started to branch into production by producing the new Tom Clancy show, which aims to compete with Netflix own original content.
Whether you believe in Netflix’s business model or not, it is a fact that Netflix has started to move towards becoming a production company. Netflix is developing many new shows and specials so it can retain users. From personal experience, however, these shows just feel like knockoffs of other popular shows. The future for Netflix is grim as more and more production companies enter the streaming sphere, destroying the monopoly Netflix has held onto for the past five years.
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