Streaming - Netflix and how it affects music
Apr 20, 2022 20:07:42 GMT -5
Post by Gary on Apr 20, 2022 20:07:42 GMT -5
Netflix’s Q1 Shocker Shakes Investors’ Faith in Streaming
After Netflix reported a loss of 200,000 subscribers in the first quarter, its share price plunged over 35%. But what does that mean for music?
BY GLENN PEOPLES
SStreaming stocks cratered on Wednesday (April 20) as investors grappled with Tuesday’s news that Netflix posted a rare decline in subscriptions in the first quarter. Shares of Netflix fell 35.1%, creating a cascading effect of losses for Roku (down 6.2%), Paramount (down 8.6%), HBO Max parent Warner Bros. Discovery (down 6.0%) and Disney (down 5.5%).
Music companies were caught in Netflix’s troubles on Wall Street, too: Spotify shares dropped 10.9% to $122.45 and Chinese streaming services Tencent Music Entertainment and Cloud Village fell 4.8% and 3.3%, respectively.
Paired with a steep decline from a subscriber warning during its Jan. 20 earnings release, Netflix’s share price has fallen 62.5% year to date and stands 67.7% below its all-time high of $700.99 set on Nov. 17, 2021.
Warnings lights flashed around the business world after Netflix revealed Tuesday it lost 200,000 subscribers in the first quarter — it had forecast a 2.5-million subscriber gain — and expects to shed another 2 million in the second quarter. After a COVID-19-related surge in customer acquisitions, Netflix succumbed to the pressures of new competition, high inflation and the loss of 700,000 subscribers from ceasing operations in Russia.
Netflix’s management also laid part of the blame on account sharing: While Netflix has 220 million paying households, the company estimates its product is shared with an additional 100 million households, including 30 million in the U.S. and Canada alone. Account sharing is not a new problem, but Netflix believes its inability to grow in some markets was obscured by COVID-19 growth. It took steps to address the problem in March when it began testing two new features in three Latin American countries: “add an extra member” for a small fee and “transfer profile to new account” so account-sharers can get a standalone subscription without losing their viewing history.
For most of its history, Netflix has been able to steadily increase the price of its on-demand streaming service with little to no impact on churn and growth. But with heavy competition from new competitors, which launch with low prices to attract customers, Netflix is embracing affordability. On Wednesday, Netflix’s management said the company plans to offer a low-cost tier with advertisements — an option it has avoided for years. That could be a smart way to target price-sensitive consumers, says MusicWatch’s Russ Crupnick. “Not everyone’s going to subscribe to a SVOD [subscription video on demand] service. So, optimizing engagement, pricing and ARPU [average revenue per user] seems important.”
Wednesday’s 10.9% drop in Spotify’s share price shows investors’ worries about the growth of streaming entertainment extends beyond Netflix. But there are several reasons why music services don’t suffer from the same pressures facing SVOD services. Netflix, HBO Max, Disney+ and Apple TV+ differentiate themselves almost solely on the television series and motion picture content they carry. While some content is licensed — Peacock paid $500 million for streaming rights to The Office and HBO Max shelled out $425 million for Friends— original programming is increasingly vital to getting and keeping subscribers. In contrast, Spotify, Apple Music, Amazon Music and most other on-demand platforms carry the same catalog of music. That means music streaming success is based on user experience and keeping people engaged, says Crupnick. “More than half of Spotify subs listen at least a bit each day,” he says.
Music on-demand streaming services’ obsession over price-sensitive customers could be a positive. While Netflix has raised prices numerous times over the last decade, music services such as Spotify and Apple Music have left unchanged the standard, individual plans — $9.99 per month in the U.S. — and have sweetened the pot by introducing cost-saving options such as family plans and student pricing. As Spotify’s revenue climbed from 5.3 billion euros ($5.8 billion) in 2018 to 9.7 billion euros ($10.5 billion) in 2021, its ARPU declined from 4.89 euros ($5.30) to 4.40 euros ($4.77).
“That has long been a sore point for the music industry, but it might now be a strategic asset,” says MIDiA Research’s Mark Mulligan. As prices for other entertainment grow while music streaming rates remain flat, he adds, “music subscriptions become even better value for money.”
Music’s other advantage is that most consumers have only one music subscription. The average U.S. household subscribes to 4.7 SVOD services, according to Kantar Group, and people frequently leave services. About half of all U.S. consumers both added and canceled an SVOD service in the previous six months, according to Deloitte’s March 2022 Digital Media Trends report. “Cancel Netflix and you’ve still got Disney+ or Prime Video,” says Mulligan. Because SVOD services compete on content, customers can stop and start services based on what they want to watch at a given time: Deloitte found that a quarter of U.S. adults have canceled in the past year and returned to the same service.
On the other hand, price-sensitive consumers have good, legal options to paying to stream music. Spotify’s free, ad-supported tier offers the same music catalog — although not the same features — as the paid option. Many consumers use YouTube for free, on-demand access to a massive music library. And personalized radio such as Pandora, while lacking on-demand access, can provide a “good enough” experience in return for hearing and viewing advertisements.
To be sure, streaming will continue to transform the entertainment business and create massive opportunities for the biggest players. Netflix itself is a huge, profitable business with 220 million global subscribers. Its first-quarter revenue grew 9.8% to $7.87 billion from the prior-year period, and it had net income of $1.6 billion. In the U.S., Netflix is used by 76% of U.S. teens and adults — although just 64% of them pay to do so — compared to 64% for Amazon Prime Video, 48% for Hulu and 44% for Disney+, according to eMarketer.
But Netflix’s earnings results were a reminder that growth cannot be taken for granted – especially for standalone companies. Both Netflix and Spotify compete against diverse companies that can leverage their scale in meaningful ways. Spotify butts head with tech giants Apple, Amazon and YouTube. Netflix goes up against media businesses that span live sports, theme parks, motion pictures and television programming — plus Spotify’s three tech-giant nemeses. Multi-format bundles — such as Apple One, which combines Apple TV+, Apple Music and other cloud-based services — could have an advantage here.
After Netflix reported a loss of 200,000 subscribers in the first quarter, its share price plunged over 35%. But what does that mean for music?
BY GLENN PEOPLES
SStreaming stocks cratered on Wednesday (April 20) as investors grappled with Tuesday’s news that Netflix posted a rare decline in subscriptions in the first quarter. Shares of Netflix fell 35.1%, creating a cascading effect of losses for Roku (down 6.2%), Paramount (down 8.6%), HBO Max parent Warner Bros. Discovery (down 6.0%) and Disney (down 5.5%).
Music companies were caught in Netflix’s troubles on Wall Street, too: Spotify shares dropped 10.9% to $122.45 and Chinese streaming services Tencent Music Entertainment and Cloud Village fell 4.8% and 3.3%, respectively.
Paired with a steep decline from a subscriber warning during its Jan. 20 earnings release, Netflix’s share price has fallen 62.5% year to date and stands 67.7% below its all-time high of $700.99 set on Nov. 17, 2021.
Warnings lights flashed around the business world after Netflix revealed Tuesday it lost 200,000 subscribers in the first quarter — it had forecast a 2.5-million subscriber gain — and expects to shed another 2 million in the second quarter. After a COVID-19-related surge in customer acquisitions, Netflix succumbed to the pressures of new competition, high inflation and the loss of 700,000 subscribers from ceasing operations in Russia.
Netflix’s management also laid part of the blame on account sharing: While Netflix has 220 million paying households, the company estimates its product is shared with an additional 100 million households, including 30 million in the U.S. and Canada alone. Account sharing is not a new problem, but Netflix believes its inability to grow in some markets was obscured by COVID-19 growth. It took steps to address the problem in March when it began testing two new features in three Latin American countries: “add an extra member” for a small fee and “transfer profile to new account” so account-sharers can get a standalone subscription without losing their viewing history.
For most of its history, Netflix has been able to steadily increase the price of its on-demand streaming service with little to no impact on churn and growth. But with heavy competition from new competitors, which launch with low prices to attract customers, Netflix is embracing affordability. On Wednesday, Netflix’s management said the company plans to offer a low-cost tier with advertisements — an option it has avoided for years. That could be a smart way to target price-sensitive consumers, says MusicWatch’s Russ Crupnick. “Not everyone’s going to subscribe to a SVOD [subscription video on demand] service. So, optimizing engagement, pricing and ARPU [average revenue per user] seems important.”
Wednesday’s 10.9% drop in Spotify’s share price shows investors’ worries about the growth of streaming entertainment extends beyond Netflix. But there are several reasons why music services don’t suffer from the same pressures facing SVOD services. Netflix, HBO Max, Disney+ and Apple TV+ differentiate themselves almost solely on the television series and motion picture content they carry. While some content is licensed — Peacock paid $500 million for streaming rights to The Office and HBO Max shelled out $425 million for Friends— original programming is increasingly vital to getting and keeping subscribers. In contrast, Spotify, Apple Music, Amazon Music and most other on-demand platforms carry the same catalog of music. That means music streaming success is based on user experience and keeping people engaged, says Crupnick. “More than half of Spotify subs listen at least a bit each day,” he says.
Music on-demand streaming services’ obsession over price-sensitive customers could be a positive. While Netflix has raised prices numerous times over the last decade, music services such as Spotify and Apple Music have left unchanged the standard, individual plans — $9.99 per month in the U.S. — and have sweetened the pot by introducing cost-saving options such as family plans and student pricing. As Spotify’s revenue climbed from 5.3 billion euros ($5.8 billion) in 2018 to 9.7 billion euros ($10.5 billion) in 2021, its ARPU declined from 4.89 euros ($5.30) to 4.40 euros ($4.77).
“That has long been a sore point for the music industry, but it might now be a strategic asset,” says MIDiA Research’s Mark Mulligan. As prices for other entertainment grow while music streaming rates remain flat, he adds, “music subscriptions become even better value for money.”
Music’s other advantage is that most consumers have only one music subscription. The average U.S. household subscribes to 4.7 SVOD services, according to Kantar Group, and people frequently leave services. About half of all U.S. consumers both added and canceled an SVOD service in the previous six months, according to Deloitte’s March 2022 Digital Media Trends report. “Cancel Netflix and you’ve still got Disney+ or Prime Video,” says Mulligan. Because SVOD services compete on content, customers can stop and start services based on what they want to watch at a given time: Deloitte found that a quarter of U.S. adults have canceled in the past year and returned to the same service.
On the other hand, price-sensitive consumers have good, legal options to paying to stream music. Spotify’s free, ad-supported tier offers the same music catalog — although not the same features — as the paid option. Many consumers use YouTube for free, on-demand access to a massive music library. And personalized radio such as Pandora, while lacking on-demand access, can provide a “good enough” experience in return for hearing and viewing advertisements.
To be sure, streaming will continue to transform the entertainment business and create massive opportunities for the biggest players. Netflix itself is a huge, profitable business with 220 million global subscribers. Its first-quarter revenue grew 9.8% to $7.87 billion from the prior-year period, and it had net income of $1.6 billion. In the U.S., Netflix is used by 76% of U.S. teens and adults — although just 64% of them pay to do so — compared to 64% for Amazon Prime Video, 48% for Hulu and 44% for Disney+, according to eMarketer.
But Netflix’s earnings results were a reminder that growth cannot be taken for granted – especially for standalone companies. Both Netflix and Spotify compete against diverse companies that can leverage their scale in meaningful ways. Spotify butts head with tech giants Apple, Amazon and YouTube. Netflix goes up against media businesses that span live sports, theme parks, motion pictures and television programming — plus Spotify’s three tech-giant nemeses. Multi-format bundles — such as Apple One, which combines Apple TV+, Apple Music and other cloud-based services — could have an advantage here.
