What a difference a year makes.
12 months ago, Netflix’s value was plummeting amid shrinking subscriber counts, fundamental business models being called into question, and mounting competition.
Flash forward to July 2023 and Netflix’s stock is up over 50% this year, in the midst of a widespread labor strike and production standstill.
With Wall Street shifting priorities from subscriber growth to more traditional measures of business success, expect Netflix to tout any improved revenue and ARPU figures from its advertising tier and password sharing crackdown in its earnings call this afternoon.
However, when it comes to demand for original content, Netflix continues to lose ground to its competition. The streamer hit new lows in originals demand share in the US and worldwide, while Apple TV+ made major strides this quarter. Netflix now accounts for barely over a third of the global demand for streaming original TV series, down from 55% in Q2 2020. That said, Netflix’s share is still 3x that of its closest competitor.
Netflix leads the pack in on-platform demand share, which accounts for audience demand for all movies and TV series, both licensed and originals. However, its lead is shrinking due to Warner Bros. Discovery's Max relaunch incorporating Discovery+ content. With Disney’s platform consolidation on the horizon, Netflix’s position at the top of this category is in serious jeopardy.
Complicating matters for not just Netflix but the entire industry will be the dual SAG-AFTRA and WGA strikes. The global demand for streaming original content rose by 21.6% in the first half of 2023, following a brief dip in Q4 2022. Streamers and studios will tout their content runways, but this growing consumer demand trend is likely to reverse if they cannot come to terms with the writers and actors in time to produce new content in the coming months.
Despite the inconsistency, Netflix is still Wall Street’s preferred media stock. Should the ad tier continue to grow and the password crackdown increase revenue, it’ll put the most profitable premium streamer in the industry in an even more advantageous position while rivals battle uncertainty.
Netflix vs All Other Streaming Originals Indexed Demand: Q1 2020-Q2 2023 (Global)
- The total global demand for Netflix Originals ticked up 3.9% in Q2 2023. Since demand for original content is a leading indicator of subscriber growth, this could indicate a modest subscriber bump for the quarter.
- However, the growth in demand for all non-Netflix original TV series grew roughly four times as fast as that for Netflix originals, explaining Netflix’s continued erosion in market share.
- Q4 2022 saw a minor decrease in the global demand for streaming original content, which at first glance appeared to signal a plateauing of consumer interest in new TV series. However, that proved to be just a minor blip and consumer demand for streaming original TV series is back to rapid growth. For the first half of 2023, the total demand for all streaming original content is up 21.6%.
- However, the rising demand could be short lived if the ongoing WGA and SAG strikes threaten the production and delivery of fresh content. The streamers’ collective ‘content runway’ will only last so long before new productions are needed.
On-Platform Demand Share: Q2 2023 (US)
- While demand for original content drives subscription growth, library content is key for customer retention, an increasingly crucial element of all streaming strategies as consumers have more choice and easier ways to cancel than ever.
- Netflix is still number one in on-platform demand share, but its lead over the field shrank significantly this quarter, largely due to the relaunch of ‘Max,’ which now includes much of the Discovery+ catalog.
- In Q1 2023, Netflix had 17.9%, a 2.1% lead over Hulu’s 15.8%. Now Netflix (16.6%) leads Max (16.0%) by just 0.6%. This was a combination of Netflix losing high profile content such as Puss in Boots, World War Z, a couple seasons of Chappelle's Show, and Max adding Discovery+ content onto its platform.
- Disney has announced plans to combine Hulu and Disney+ in some form. A combination of both streamers’ on-platform share would account for nearly a quarter of all the demand for content with US consumers.
TV Originals Demand Share — Q1 2020-Q2 2023 (Global)
- Netflix’s global share of demand for original series continued its steady three year and counting erosion, down to a record low of 35.3%. While it is still the biggest player by far, this represents a nearly 20 percentage point drop in the last three years, when it accounted for 55.0% back in Q2 2020.
- Both Apple TV+ (7.4%) and Paramount+ (5.0%) hit record highs in global demand share in Q2 2023. Apple TV+’s growth was pushed by exceptional demand for the final season of flagship comedy Ted Lasso.
- In fact, Ted Lasso was the number one streaming original worldwide in Q2 2023, beating out Disney+’s The Mandalorian and Netflix’s Stranger Things, which had held the top spot for four straight quarters. This is the first time since Q1 2017 (The Grand Tour on Amazon Prime Video), that a streaming original from outside of Netflix or Disney+ has been number one with global audiences for a full quarter.
- The ‘Others’ segment continues to gain ground, as niche global streamers like iQiyi, BBC iPlayer, AMC+ and many more grew to a combined 23.6% in Q2 2023. This was a sizable jump from 20.6% in Q1 2023, and 13.7% a year ago in Q2 2022.
TV Originals Demand Share — Q2 2023 (US)
- For the second consecutive quarter, Netflix hit a record low streaming originals demand share in the United States, sitting at 36.3%. This is down from 39.1% in Q1 2023 and 40.5% in Q2 2022.
- This chart shows how mature and competitive the US streaming industry has become, with just 2.9 percentage points separating second place from sixth place.
- Just as it did globally, Apple TV+ (8.3%) hit a record demand share in the US this quarter. It moved into third place in this category for the first time ever, ahead of Disney+ (7.3%) and within striking distance of overtaking Amazon Prime Video (8.6%) as Netflix’s top competitor in demand for streaming original content.
