As Netflix reported fourth-quarter earnings last week, it shocked the industry by also announcing that Reed Hastings, the long time head of the company and architect of its transition from a DVD-by-mail service to global streaming leader, would step down as CEO. His shift, though, is just an outward sign of the significant inflection point the company finds itself at, as shown by numbers that reflect changing consumer behavior as the streaming industry matures.
Netflix hit a new low in terms of the global share of demand for its original series in the fourth quarter, according to Parrot Analytics‘ data, which takes into account consumer research, streaming, downloads and social media, among other engagement. In the final quarter of 2022, Netflix originals accounted for 39.6% of demand for streaming original series globally. This was the streamer’s first time falling below a 40% share globally and reflects how new entrants have cut into its dominant market share.
In the trend chart, we can see how in the third quarter Netflix’s demand share bumped up due to the global success of “Stranger Things,” whose impact was stretched out over a longer period thanks to a two-part release strategy. But Netflix’s share fell to new lows after the warm reception of its flagship series faded.
Netflix has been ceding ground to newer competitors for some time. But a more recent development in the past quarter has been plateauing demand for original content across streamers. Total global demand for original content from all streamers excluding Netflix was flat from the third to fourth quarters of 2022. After nine consecutive quarters of growth, albeit at a slower rate than its competitors, the total demand for Netflix originals actually fell 4.1% from the third quarter to the fourth.
This contrasts sharply with the clear upward trend of growing demand for original series from Netflix’s competitors over the past few years and looks like a signal that the global SVOD industry may be approaching saturation levels, or at least a new era where the fight for audience attention will become even more challenging.
With Wall Street shifting its focus to financial performance over subscribers as a metric, this raises questions about the costs of attracting new subscribers in a saturating competitive environment. If a two-part season of its biggest hit was barely able to put the brakes on Netflix’s demand-share decline, what massive content investments would be needed to bring in new subscribers who have a plethora of other streaming options?
If attracting subscribers with ever more content is getting too costly for Netflix, it’s now looking to tap into the potential revenue represented by the 30 million people using Netflix for free in the U.S. (and 70 million globally) by cracking down on password sharing. It isn’t a given that these freeloaders will be willing to cough up money to keep accessing Netflix content, but it does suggest Netflix sees monetizing these potential subscribers as an easier investment than upping its already-vast content budget.
Looking at the most in-demand shows on Netflix for the quarter, we see how important licensed content still is to Netflix’s offering. While “Stranger Things” topped the ranking for the quarter with 70.9 times the demand of the average series, it was coming down from the stratospheric highs of the third quarter when Netflix released the last part of its long-awaited fourth season.
The only other Netflix original in the top 10 for the quarter was “The Witcher” which got a boost in attention from both the news that Henry Cavill would be replaced by Liam Hemsworth and the release of a prequel miniseries, “The Witcher: Blood Origin,” in December.
After years focused on building a library of original content with a hefty price tag, the majority of the 10 most in-demand titles on Netflix are still licensed from other companies. This is a potential risk. Of the licensed shows in the top 10, a majority have ended or have announced a final season.
“The Walking Dead” just wrapped up its final season. “Better Call Saul” finished in August. And “Breaking Bad” is coming down from the highs seen during its prequel’s finale. “The Flash” will premiere its ninth and final season in February and “Outlander” just announced its eighth season will be its last.
If Netflix was hoping to cut back its content spending in a fiscally prudent move, it may be facing a gap that could need to be plugged as these licensed series reach their end.
Christofer Hamilton is a senior insights analyst at Parrot Analytics, a WrapPRO partner. For more from Parrot Analytics, visit the Data and Analysis Hub.
