In the mid-life crisis of Netflix, gaming may be a helpless move

Streaming media received the biggest dividend in history during the epidemic. If you come out, you have to pay it back. Judging from the second-quarter earnings report just released by the streaming media “Big Brother” Netflix, it has gradually been able to perceive this “forced repayment” feeling of powerlessness.

Streaming media received the biggest dividend in history during the epidemic. However, as the saying goes, you have to pay back when you come out. Judging from the second-quarter financial report just released by the streaming media “one brother” Netflix, it has gradually been able to feel this “forced to repay” powerlessness. Entering 2021, the growth of Netflix subscribers has been weak, and the response to high-quality content has been mediocre. Announced to enter the game field, can it become the second curve of Netflix’s growth?

After the market on July 20, Eastern Time, Netflix released its Q2 earnings report. However, with the glory of 10 million new subscribers in the same period last year, the data that Netflix added only 1.5 million new subscribers worldwide from April to June this year seems pitiful. Interestingly, this year’s growth mainly comes from Asia and Latin America, and even 430,000 households have been lost in North America. There is no need to talk about expectations this quarter, because Wall Street analysts who have always been tolerant of technology companies have almost reduced their expectations to a minimum.

Marvel and “Rocky” are flanking, how does Netflix make a bloody path?

As Netflix executives said at the conference call, at present, both Disney and HBO only operate in a certain area, and this can specifically refer to North America. And Netflix’s business line is the world, or more specifically-the most developed region of the global entertainment industry.

For example, the growth line of Netflix Asia Pacific mainly includes Japan, South Korea, Australia, Southeast Asia and other regions. Assuming that India and Southeast Asia are benefiting from the resurgence of the epidemic, the growth of South Korea and Japan, the core of the Asia-Pacific region, is due to a strong film and entertainment foundation. South Korea has popular dramas such as “The Kingdom” and “The Top Floor”, each of which is an engine of growth, and Japan has more enduring anime series.

The consumption habits in North America and Europe are also different from those in Asia. Consumers may subscribe more on a monthly basis, which also causes greater fluctuations in new users in Europe and the United States. Of course, more importantly, the local media industry in Europe is underdeveloped, and it often follows the American TV series, which has very obvious seasonality, which also allows users to form seasonal consumption habits.

The bottom line is that users always follow the content.

The competitive environment that the executives said has not really changed, and there is no problem with these streaming media content providers. Many Marvel fans will be pleased with the current Disney+, which has announced 104 million subscribers in Q1, which is half of Netflix. Under the reputation of “Wanda Vision”, “Falcon and the Winter Soldier”, “Rocky” and other popular drama series, Disney’s performance in Q2 is more worth looking forward to.

But according to Nielsen’s “TV” usage survey of Americans, Disney+ currently only accounts for 2% of the time (between 1% and 2%, to be exact) as of June 2021, similar to Amazon’s Prime. There is still a gap with Disney’s Hulu’s 3%+, and it is far behind YouTube’s 6% and Netflix’s 7%.

Although Disney+ has half the subscribers of Netflix, the use time cannot keep up. Does it also show some problems?

High-quality content has stepped down from the altar, and short video platforms are catching up. Why does Netflix compete for user time?

There are few restrictions on content creation in North America, so Netflix North American subscribers have begun to lose due to two reasons: one is that Netflix’s content is not attractive; the other is that users really don’t have time to watch it. The first one can also explain the second one to a certain extent.

In 2020, Netflix is ​​almost titled in terms of content. IMDB’s annual ten best Netflix shows accounted for 8 of them, including phenomenal works such as “Abandoned Soldiers on the Rear Wings” and “Spots of Dark Money”. From 2021 to now, even if there are works such as “Lupin” (IMDB 7.5) and “Who killed Sara” (IMDB 6.4) that breakthrough its previous styles, they have not been bought by more audiences.

What shines in Q2 is the new competitor’s drama. In addition to Disney’s MCU series, there are also Warner’s HBO’s new DC comic series “Superman and Louis” (IMDB 7.9), starring actress Kate Winslet. East City Nightmare” (IMDB 8.5).

One of the risks of content creation is that it cannot always satisfy the tastes of the audience. The fatigue of Netflix in content creation is emerging, and users are choosing more ways to choose works.

As for the competition for user time, Netflix’s threat is not only Marvel and DC, but also any mainstream sports channels, UGC streaming media platforms and short video platforms.

Now that the Olympics are coming soon, Netflix, which has almost no penetration in sports, may not be able to enjoy the bonus once every four to five years. And the statement of executives at the conference call also made investors fail to see that Netflix is ​​interested in sports programs.

In the final analysis, they believe that the cost of broadcasting sports events is extremely high, the return on investment is not high, and it is difficult to create synergy with Netflix’s existing programs. Therefore, Netflix’s investment in sports is limited to niche events such as F1, and documentaries of sports celebrities.

But the big problem of UGC and short video platforms can really hurt your muscles and bones. If domestic audiences can better understand it, it is the plunder of Aiyouten by Station B and Douyin Kuaishou. Investors can look forward to the description of YouTube user data in Google’s earnings report.

Given that overseas film and television copyright protection is extremely strict, it is difficult for short videos such as “watching a movie in three minutes” to become popular, which also created the last moat for Netflix.

Can game executives dug by EA save Netflix’s midlife crisis?

Financially, NetflixQ2 revenue was US$7.342 billion, a year-on-year increase of 19.4%, and net profit was US$1.353 billion, a year-on-year increase of 87.9%.

Wall Street expected revenue of 7.32 billion U.S. dollars, which is actually slightly more than that. The expected net profit is US$1.53 billion. Although it is actually only US$1.353 billion, it includes an unrealized foreign exchange gain of US$63 million. The adjusted profit is roughly the same as expected. If you look at EBITDA, the profit margin continues to rise to 26.8%, which is on the same level as Wall Street expectations.

But the days that had previously exceeded expectations may be difficult to reproduce. Since the Olympic season is not the company’s “home court”, the management has also adjusted its expectations for the coming quarters more conservatively.

Therefore, the company is looking forward to the emergence of the second growth curve, targeting the gaming industry.

Netflix believes that entering the game industry can have intellectual property rights and long-term franchise rights, and can produce synergies with current movies and TV series. The company is expected to advance into mobile games and tablet games, and has hired former EA and Oculus executive Mike Verdu to take charge of its game business.

Every expansion will usher in a very heated debate period, and Netflix has also spent several years exploring the possibility of the game business. It’s just that, unlike previous streaming media, there seems to be no way out of the game this time.

Of course, the streaming media industry is far from reaching the ceiling, but before that, Netflix has to gradually accept the reality of a “mid-life crisis” in which the growth rate has dropped to 20% and that it relies on leveraged repurchases to support investors.