Netflix has had a booming year so far when it comes to its subscriber count. The streaming service added more than 10 million subscribers in Q2 compared to 2.7 million during the same time last year. The streaming service now has more than 190 million subscribers in total.
But while the numbers are looking good right now, analysts say this could be the calm before the storm for Netflix who may struggle to retain those new subscribers with a slowing content output. The streamer is already projecting it’s subscriber rate will be back down to 2.5 million new subs in the third quarter ending Sept. 30.
“We suspect that this [sub decline] phenomenon has already begun and led to the company’s lackluster guidance for Q3 net sub additions,” said Michael Pachter, a media analyst with Wedbush Securities in Los Angeles. “Once the pace of its delivery of new content begins to wane, we expect Netflix to see higher churn and much slower subscriber growth.”
Pachter says Netflix’s subscribers have a high rate of consumption averaging to be around 30 – 40 hours per month before the pandemic and probably more like 50 – 60 hours per month now. That means viewers burn through content pretty quickly, and while Netlflix has a robust library that has been able to keep up with the demand so far, things could change in 2021 as streaming services in general struggle to release new content because of all the shutdowns handed them by 2020.
One of the hard hits unique to Netflix vs its main competitors is that it has no legacy content from a parent network, only movies and series produced in house or acquired under a licensing agreement. Content shortages will hit streamers like HBO Max and NBCUniversal’s Peacock a lot less since they can pull from a deep catalog.
“Of course, [Netflix] can bid for library content, but its competitors are similarly likely to bid on the same content, driving up the cost of library content and contributing to a return to negative free cash flow next year,” Pachter wrote.
Netflix’s 190 million subscribers blow all of its competitors out of the water. It’s estimated Disney+ is sitting at 75 million, and Hulu at an estimated 35 million subs. But whether or not Netflix can hold on to that number is something we’ll be watching in the next year. It’s likely the streamer will still remain on top for now, but could see it’s subscribers fluctuate and settle at a lower number once the pandemic lightens and less content is produced.
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