Netflix to Seek out New Sources of Revenue Growth as Competition Rises
Netflix, while a clear leader in the video streaming market, has repeatedly had its competition in the video streaming market intensify. There are now numerous parties vying for user adoption, competing on both price and content offerings. Netflix has traditionally faced competition from established players such as Amazon Prime Video or Hulu, but it is now being challenged by an ever-growing list of service providers, including Apple TV Plus, Disney Plus, CBS All Access, Britbox and HBO Max, to name but a few.
These new challengers provide intense competition due to their different strategies in terms of content and monetisation. For example, Apple TV Plus is attempting to create high quality content, using recognised household names. Disney Plus is leveraging its unique back catalogue and the strong brands it holds, including many Disney films, Star Wars and Marvel. CBS All Access leverages key franchises, including Star Trek, to drive consumer adoption.
In this context, Netflix’s own differentiation strategy has become rather muddied of late. Traditionally, it relied upon licensing a large amount of premium third-party content, but much of this has been restricted to use in separate streaming services. Netflix has pivoted to creating its own content, spending just over $12 billion on developing content in 2018, but has struggled to gain critical acclaim for its productions.
As a result of these pressures, Netflix will seek new, more sustainable sources of revenue growth in 2020, by producing more localised content and investing in sports content. In order to revive its growth, Netflix will have to seek areas of the market that are currently underserved by its competitors. Accordingly, Juniper Research expects Netflix to focus on enhancing the quality of its TV content offerings in 2020, particularly in emerging markets, and in some cases by region within those markets, via local languages.
Furthermore, Amazon has succeeded in showing sports content on Prime Video, demonstrating that there is potential for other streaming providers in this area. Despite stating in 2018 that it would not broadcast news or sports content, Juniper Research believes Netflix will change this strategy to enable further growth. By purchasing sports content rights, it will stimulate its growth in established markets, significantly increasing its value proposition for end users. As a result, users will have more engaging content on the service.
By increasing their engagement with users internationally and investing in local content, Netflix will gain an early mover advantage. This is particularly important, given the saturation in developed markets, with users already shelling out large monthly amounts on services. However, this saturation is nowhere near as pronounced in developing markets, meaning there is a strong opportunity to capitalise on underserved markets.
This user growth will likely be to the detriment of other streaming services. Indeed, given the intense competition in the market, consolidation in the longer term in the streaming area is inevitable. Netflix will be well positioned to acquire any streaming services from players exiting the market, which would shore up its market share even further. However, there are likely to be regulatory interventions on competition concerns if Netflix were to acquire rivals, which will require careful management.
Juniper Research predicts that these anticipated changes by Netflix in its core strategy will enable it to return to buoyant user number growth, both inside and outside the US. This user growth, plus the strong competition in the market, will drive the overall revenues the chart above, showing how valuable the market is. These themes are explored further in our Digital TV & Video research suite.
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