The Streaming Wars have gone global and nobody is betting more on that than Netflix. As U.S. subscriber growth comes to a near-standstill amid mounting competition from upstarts, the streaming giant needs foreign consumers more than ever to maintain its perch.
And investors, once bullish on the streaming innovator, are starting to panic. Netflix’s stock price tumbled as much as 20% on Thursday after the company reported its Q4 earnings. Not only did Netflix miss on its subscriber goals for 2021 (though just barely), it posted its worst year of growth since 2015 — roughly half of its record-setting 2020. Worse yet, Netflix is forecasting to have its worst first quarter in at least a decade (only 2.5 million net new subscribers).
“The 2022 backdrop for Netflix seems to have been set with a theme of competition abound,” Joe McCormack, Senior Analyst at Third Bridge, wrote on Thursday. “Lower subscriber growth expectations coupled with a return to negative free cash flow driven by a continued need for high content investments to keep existing subscribers engaged and new subscribers harder to come by.”
These days, Netflix is getting the most growth from the Asia-Pacific and EMEA (Europe, Middle East and Africa) regions, which accounted for more than 14 million new subscribers last year. Those were also the regions that produced some of Netflix’s biggest foreign-language hits, like “Lupin” (France), “Money Heist” (Spain) and “Squid Game” (South Korea). Latin America added just 2.4 million subscribers, a number that Netflix blamed on economic issues still impacting that region.
Compare that to the U.S. and Canada, which added only 1.2 million subscribers for all of 2021, and actually posted a loss during the second quarter.
“We took a big bet years ago that people would move into Netflix and Netflix-type offerings to consume movies and film. That was a big big bet that we’ve seen continue to go through. We have no change in our confidence in that,” Netflix Co-CEO Ted Sarandos said Thursday after the company reported its Q4 earnings. Despite the lower overall growth, he suggested that last year proved that streaming is a global game. “We were able to prove out two other theses that we’ve bet on starting years ago. One big one, around our investment in international programming. Glad that we started that seven years ago. We were betting that you could films and series from anywhere in the world and entertain the entire world,” Sarandos said.
Netflix is surely banking on that international growth not only continuing, but speeding up. The streamer needs that overseas growth, given the increased attention its streaming competitors are putting on international expansion.
Netflix co-CEO and founder Reed Hastings argued that the unbalanced nature of the last two years — the massive surge in subscribers in 2020, which likely ate some of the growth for 2021 — has made it much more difficult to predict what’s going to happen. “The prior years we were very steady, so we had confidence on incremental trends,” Hastings said during the call. “There’s more competition than there’s ever been, but we had Hulu and Amazon for 14 years. It doesn’t feel like any qualitative change there.” Hastings argued that the stiffer competition has only proven out that streaming is stable industry.
Hastings also pointed out that at 75 million subscribers in the U.S. (and Canada), Netflix has yet to achieve the saturation that pay TV did during its 2014-2015 peak (which was around 100 million homes). “It’s the last third that’s the hardest.”
One challenge to domestic growth may be Netflix’s decision to hike prices again, with its most popular plan costing over $15 a month. For the majority of Netflix’s customers, the service will now cost more than HBO Max — which was previously among the most expensive streaming services.
McCormick noted that price increases also threatened Netflix’s ability to hold onto its current subscribers. “Whether Netflix can retain subscribers at historical rates now that their most popular tier costs the same as HBO Max after their most recent price increase will be important to gauge as we head into a 2022 year that many seem to believe will come with streaming video subscriber saturation overall,” he added.