Is Netflix’s Pandemic Boom Over? Analysts, and Even the Streamer Itself, Think So

NEWS ANALYSIS — Heading into Netflix’s first-quarter fiscal results on April 20, market speculation regarding the streamer’s subscriber growth dominates.

Following a year, 2020, in which Netflix added a record 37 million subs, conventional wisdom suggests the SVOD pioneer can’t replicate, much less exceed, last year’s Q1 sub increase of 16 million subs.

London-based Ampere Analysis and Los Angeles-based analyst Michael Pachter contend Netflix added 6 million subs worldwide through March 31 — the lowest sub gain in four years. Of course, that’s playing it safe, considering Netflix itself has projected the same conservative sub growth.

That’s a smart move, since Netflix short-sellers typically salivate ahead of earnings, hoping for bad news — only to be dashed at the gallows when positive results come out.

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“It is not quite the end of the pandemic effect for streaming services, but we are beginning to see the tail end of it; it’s definitely on the wane,” Richard Broughton, analyst at Ampere, told The Guardian. “If Netflix’s numbers do come in as predicted, they will be the lowest for a good few years.”

Netflix ended 2020 with slightly more than 203 million subscribers and expects to end the first quarter of 2021 with 209.6 million subs. The service added 41% of subs from Europe and the Middle East.

“We’re becoming an increasingly global service, with 83% of our paid net adds in 2020 coming from outside the [North America] region,” co-CEOs Reed Hastings and Ted Sarandos wrote in the company’s Q4 shareholder letter. “The quarterly guidance we provide is our actual internal forecast at the time we report and we strive for accuracy.”

Pachter says Netflix has executed “extremely well” during the pandemic by keeping its “foot on the gas pedal” for subscriber growth, while benefiting from a disruption in content production that allowed it to generate — for the first time — positive free cash flow.

“While we are far more constructive about Netflix than we have been at any point in nearly a decade, we continue to question its [market] valuation,” the analyst wrote in a note.

Netflix continues to successfully fend off growing competition from Disney+; increased content spending from Amazon Prime Video; and pending European launches of HBO Max and Paramount+. As warmer weather arrives around the world and pandemic restrictions on social gatherings ease due to vaccinations, the number of consumers interested in binge-viewing the latest U.K. serial drama might wane.

“Netflix went into the pandemic as the strongest service, and although there has been the arrival of very successful new entrants such as Disney+, it is [still] in an extremely strong position now,” Broughton said.

Domestic SVOD Subs Top U.S. Population

There are more subscriptions to streaming video services in the U.S. than people living in the country.

That’s the latest data from Ampere Analysis that shows there are now more subscriptions to services such as Netflix, Amazon Prime Video, Hulu, HBO Max and Disney+ than the entire U.S. population.

The pandemic and stay-at-home measures, the launch of new studio-backed subscription services, and increased rates of service stacking all contributed to reaching this milestone through March 31.

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There are now nearly 340 million subscriptions, with 57% of Internet users saying that SVOD services are the main way they watch TV and movies. More than 25% of high-speed internet users in now report using five or more streaming services. More than two thirds of online consumers regularly binge watch TV.

Ampere said that globally, the U.S. has the highest level of reported binge watching of any developed market.

“In 2020, pay-TV penetration dropped below 60% for the first time, down from more than 80% at the beginning of 2015, with consumers increasingly shifting to SVOD services,” Toby Holleran, research manager at Ampere, said in a statement. “Alongside growth from the pandemic, 2020 also saw the domestic launches of both Peacock and HBO Max, which grew the market even further.”

Holleran said that as more consumers shifted away from linear TV and streaming service options increased, consumers curated their own content portfolios, leading the overall number of subscriptions to exceed the population.

“In our latest U.S. consumer wave, the average SVOD household took more than four services, and with the more recent launch of services such as Paramount+ and Discovery+, this could grow even further as 2021 progresses,” he said.

Report: Netflix Lost 30% U.S. Market Share in 2020

Netflix reportedly lost more than 30% of its U.S. market share in 2020 as new competitors HBO Max and NBCUniversal’s Peacock entered the SVOD ecosystem, according to new data from Ampere Analysis.

While the subscription streaming video pioneer continues to dominate total subscribers, industry awards (recently sweeping the SAG Awards) and Nielsen’s weekly Top 10 streamed original, licensed TV shows and original movies — Netflix’s market share is down to 20% from 29% in the previous research period. That’s because Peacock and Max grabbed about 5% and 3% market share, respectively, from Netflix.

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Should Netflix be worried? Of course not. The streamer generated more than $25 billion in revenue, and added a record 37 million subs globally in 2020, of which 80% came from outside the U.S.

Ampere, per The Wrap, contends Amazon Prime Video has 16% market share in the U.S., followed by Hulu (13%), Max (12%) and Disney+ (11%). Apple TV+ matches Peacock at 5%, followed by ESPN+ (4%), Starz, Paramount+ and Starz at 3%, respectively. YouTube TV, Sling TV and BritBox each have 1% market share.

Notably, the research firm suggests Prime Video has 54 million active users from a paying base of 150 million Prime members. Amazon has not updated Prime Video streaming metrics. Overall, the average U.S. household spends $40 monthly on streaming services — up 17% from an average of $34 spent monthly in early 2020.

 

Netflix No. 2 TV Group in Europe in Revenue

The Netflix star just gets brighter. New data from Ampere Analysis reveals that the SVOD behemoth became the second largest TV group in Europe by revenue in 2020. Comcast, through its acquisition of satellite TV operator Sky, is the Euro leader with 12% market share compared to Netflix’s 6.1%.

“Since launching in 2012, Netflix has grown rapidly in Europe,” analyst Tony Maroulis said in a statement.

Indeed, by 2016, Netflix had launched its services across much of Europe and surpassed $1 billion in revenue. By 2017, it had the largest customer tally of any subscription TV business in Europe. And by 2020, Netflix had overtaken German public broadcaster ARD.

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It would seem that there is no limit to Netflix’s meteoric rise as the streamer continues outsized foreign growth, and helps itself to a greater portion of the audio-visual revenue.

“While Netflix has enjoyed success across the continent, local broadcasters are facing increased pressure,” said Maroulis. “The coronavirus pandemic has thrown the TV advertising market into decline, compounding and accelerating the woes of traditional and established brands. And while Netflix’s pockets are getting deeper, local entities are struggling to compete.”

Ampere contends that over the next few years, Netflix alone is set to be better funded than many leading commercial broadcasters, and its scale means that it is able to produce quantities of high-quality content that most of its local competitors cannot match.

“This global vs. local imbalance will further accelerate the online viewing shift, which is now beginning to shift to older demographics as well as young,” Maroulis said.

Average U.S. Streaming Household Now Subscribes to Four SVOD Services

The average U.S. streaming household now stacks an average of four different subscription video services, according to the latest analysis from Ampere Analysis.

In the five largest Western European territories, streaming homes have an average of two services, according to Ampere.

Overall, across Western Europe and the USA, almost 10% of SVOD homes already subscribe to five or more services.

“AVOD, studio-direct streaming launches, the strengthening of local and broadcaster-led streaming, and the turbo-boost that came out of the blue in the form of COVID-19 have brought the industry to a pivot point,” Guy Bisson, research director at Ampere Analysis, said in a statement. “That pivot point will lead to a shift in thinking that will change the way content creators, distributors and content aggregators, platforms and channels think about streaming in the wider TV market. In 2021, compounding is here to stay in every portion of the streaming value chain.”

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Ampere: Nordics Fertile Market for U.S. Streaming Video

A diverse range of content interests among consumers translates into the Nordics offering strong growth opportunities for upstart U.S. studio-led subscription video streamers, including BritBox, according to new data from Ampere Analysis.

Scandinavia, which includes Finland, Sweden, Norway, Iceland and Denmark, shows strong interest in both local and international content, a trait which, when coupled with the region being one of the most advanced OTT markets in the world, means consumers are up for adding SVOD platforms — despite Scandinavia having an average of 2.4 services per household and 14.7 million combined subscribers.

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Local streamers have captured large audiences, with Viaplay being the largest local player in terms of subscriptions across all four Nordic countries in 2020. While Netflix is still the largest single SVOD player, securing 32% of the OTT market by the first half of 2020, this is still lower than Netflix’s average market share in the rest of Western Europe. Disney+ had 700,000 subscribers by the end of 2020.

Ampere found that in a scenario where all pay-TV revenue is converted to OTT, the average household would be able to subscribe to four services in Norway and Denmark, and three services in Sweden and Finland.

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“As a region where there is demand for both English language and local content, the Nordics is an attractive market for new international players to launch there while allowing local players to co-exist,” analyst Maria Dunleavey said in a statement. “Our research has found Nordics households are not yet at SVOD capacity, but as new market entrants like Paramount+ edge closer to launch, the quality of content will prove key to capturing the interest — and wallets — of Nordic consumers.”

Ampere believes the Nordics could be a region of interest for BritBox and other international players as they push ahead with international expansion. BritBox’s classic English language content is well-suited to the local audience which rates British series highly. Ampere’s Consumer media and entertainment tracker in Q3 2020 found that 21% of respondents in the Nordics watch British TV series often, compared to 14% across all markets. The Nordics also over-index for viewing American content, with 37% of respondents watching U.S. TV series frequently, compared to an average of 31% across all countries. While quality of local content still remains essential, this unusually high interest in British and U.S. series means studio-led new entrants should find favor in the region, according to Ampere.

Ampere: China, Asian Market Projected to Lead Theatrical Comeback in 2021

Without a vaccine and/or decline in coronavirus infections, the theatrical market in the U.S. and other western markets is expected to remain challenged in 2021. New data from Ampere Analysis contends global box office dropped 75% in 2020 to $11 billion, from $44 billion in 2019. The London-based firm suggests China and other Asian markets less impacted by the pandemic will spearhead theatrical’s return next year to $33 billion in ticket sales.

Ampere’s latest forecasts in Asia Pacific show revenue reaching $15 billion by 2021 and $25 billion by 2025 to match pre-pandemic levels. China is responsible for the lion’s share of this recovery. Q1 is the market’s most lucrative quarter, and the pandemic is therefore likely to stymie growth in 2021 too. However, the success of recent movie releases in China suggests that consumers are cautiously returning to theaters. These markets are less reliant on U.S. content and Ampere anticipates that continued local investment in production will further buoy recovery and growth.

 

“2020 was the year that the Chinese box office was expected to overtake the U.S.,” research director Richard Cooper said in a statement. “The pandemic halted that, and instead we will see these two markets vying for the global number one slot in 2021. By the following year however, China will move into the lead, to double the size of the U.S. market by 2025.”

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It’s a different story in the Western markets, where cinema closures and the reductions in the number of accessible screens are set to continue. This will limit access to movie theaters, accelerating the downturn already evident in markets such as Germany, France and the United States.

The Asia Pacific markets have become less reliant on foreign movie content over the past few years for their revenue. The void left by the absence of U.S. releases as a result of the pandemic has provided a golden opportunity to promote local content. As a result, a number of high-profile releases in Asia in Q3 and Q4 have begun to resuscitate the local theatrical sector. In Japan, Demon Slayer the Movie: Mugen Train broke all records, earning $140 million to-date at the box office. In China, local titles My People, My Homeland and The Eight Hundred have grossed $460 million and $416 million, respectively, in China alone, far outstripping the revenue generated by China’s top-performing U.S. releases Tenet ($51 million) and Mulan ($41 million).

“This sector is characterized by very different performance depending on location. In the West, theatrical revenue is under serious pressure, while in Asia, we expect the market to bounce back rapidly, driven by the rise of locally produced content. Many of the Hollywood studios are shifting their business models to react and adapt to this geographic change, experimenting with digital release strategies in Western markets and testing the viability of bypassing theatrical release. As a consequence, Asia will emerge as the predominant theatrical market by 2025.”

Ampere: Peacock and HBO Max Appealing to Different Audiences

NBCUniversal’s Peacock subscription streaming video service topped 15 million app subs, while WarnerMedia’s HBO Max surpassed 4.1 million in their respective first month of operation. New data from Ampere Analysis contends consumer response to the two platforms has been positive.

The London-based research firm, citing a survey of 4,000 online respondents in the U.S., found 8% of domestic Internet homes had Max subscriptions, while 7% were using Peacock. Age seems to be a factor among app subscribers.

“Peacock’s early adopters show that it has been successful in converting broadcast channel audiences — who are an older demographic and typically more difficult to convert — into SVOD subscribers, allowing it to play in an arena that is generally less competitive,” senior analyst Annabel Yeomans said in a statement.

Indeed, Max subscribers are 50% more likely to be in the 25- to 44-year-old age group, which is identical to the current HBO pay-TV sub. In addition, Max’s $14.99 — thus attracting 69% of households with incomes of $51,000 or more.

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Meanwhile, Peacock is appealing to slightly older subs (35 to 44), with broadcast programming targeting older viewers, according to Ampere. The report contends 19% of Peacock’s viewers are over 55, compared with 6% of Max viewers. And 54% of Peacock households have total incomes of $51,000 or more.

Peacock, unlike other major SVOD platforms, has a free ad-supported option.

Regardless, content remains king and Yeomans said Max has yet to diversify its audience away from the hardcore HBO pay-TV channel known for high-end drama, comedy and documentaries.

“Nonetheless this is an already-crowded market with strong competitors like, so while increasing the diversity of catalogs and quality of original content will be key to driving scale, playing to each services’ brand and audience strengths should also not be forgotten,” she said.

Ampere: AVOD Attracting Nearly 20% of U.S. Internet Users

Free access to ad-supported video-on-demand content continues to gain traction among viewers in the United States. New data from Ampere Analysis found that about 20% of domestic Internet users are accessing AVOD services such as The Roku Channel, IMDb TV, Pluto TV, Tubi and Shout! Factory TV, among others.

Based on third-quarter (ended Sept. 30) data, 17% of U.S. Internet users streamed one or more AVOD service in the prior month, up from 13% in the previous-year period. The surge in AVOD use has been spearheaded by Fox-owned Tubi, whose content catalog claims to be larger than Netflix’s.

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Similarly to SVOD services such as Netflix, Amazon Prime Video, Hulu and Disney+, AVOD platforms are looking at exponential user growth and consumers migrate away from linear television. But Ampere contends the AVOD audience is older and more likely to be from lower income households than their SVOD counterpart.

“The VOD market continues to expand and fragment, offering viewers more choice of platforms,” Minal Modha, consumer research lead at Ampere, said in a statement. “Despite some resistance to the high levels of advertising on U.S. broadcast channels, 44% of consumers still say that they don’t mind seeing ads on TV, so AVOD services are quickly filling a market position.”

The report says entertainment revenue streams have been under increased pressure in 2020 due to the coronavirus pandemic as advertisers pulled back on spending. At the same time, AVOD remains a novelty among consumers, in addition to being backed by well-funded media and technology firms. As a consequence, the research firm does not anticipate COVID-19-linked ad-demand issues will be a fundamental issue for AVOD distributors.

Although SVOD services in the U.S. currently have higher numbers of monthly active users than AVOD, Ampere found that in Q3 2020, nearly one in five consumers (17%) watched an AVOD service in the prior month.

Ampere says Tubi offers more than 29,000 titles, including five times as many movies as Netflix. It’s beaten only in terms of overall catalog size by Amazon Prime Video. Large catalogs are crucial for AVOD user growth as advertising revenue is highly dependent on user consumption — a contrast to SVOD, which can subsist on smaller catalog, providing key titles are sufficiently high profile.

Despite their similar content catalogs, and the growing user base on AVOD, Ampere believes the two platforms aren’t competing for the same audiences. It contends AVOD users are older than SVOD subscribers, and are more likely to be from lower income households.

The report said 25% of AVOD users are aged 45 to 54, compared with 22% of SVOD viewers; and 19% of AVOD users are aged 55 to 64 versus 14% of SVOD subscribers. Nearly half of domestic AVOD users have an annual household income of less than $30,000 per year, compared to a third of SVOD users. Almost 20% AVOD viewers live in households with annual earnings of less than $15,000 per year.

“With distinct audiences, we believe that these two offerings aren’t competing directly with each other but rather can coexist,” Modha said.

She said that with ViacomCBS, WarnerMedia and NBCUniversal opting for both SVOD and AVOD platforms, in the current climate with both economic uncertainty and a greater need for people to stay at home, there is a market for both.

“We expect the use of AVOD services to continue to rise as more consumers will be turning to these platforms as they seek entertainment without increasing their financial outlay,” Modha said.

Ampere: Delays of Scripted Content to Last Well Into 2021

Producers of new scripted content — which typically spends an average of 11 months in production — will be battling against COVID-related delays well into 2021, far longer than their unscripted counterparts, according to a study from Ampere Analysis.

While producers of new unscripted content — which spends an average of just two months in production — have been able to adapt production to the new circumstances, already overcoming the worst period of delays, the same is not true for their scripted counterparts, according to the analysis.

Compensating for the lack of new high-quality scripted content, unscripted commissions increased from 66% in Q2 2019 to 72% in Q2 2020. Reality shows benefitted the most from this trend with 24% more titles commissioned in Q2 2020 than in Q2 2019.

The temporary stop in production also forced programmers to air older and less popular content to fill gaps, and some have turned to unscripted material to pad their schedules, according to Ampere.

While the proportion of new content aired dropped steadily over Q1 and Q2 2020, unscripted content has already made a rapid recovery, with new titles representing a higher proportion of primetime series than before COVID-19. However, the proportion of new scripted primetime shows has yet to return to pre-COVID levels.

Meanwhile, linear viewers in the U.S. and U.K. rated comedy, crime and thriller, sport, drama, and sci-fi and fantasy as their top five genres in Q1 and Q2 2020 — the same period that saw a considerable decrease in the proportion of new titles aired for all five genres.

“At the time of writing, almost half of all scripted commissions from the first half of 2019 had yet to be released, highlighting the long production periods for scripted shows and the impact of exposure to the COVID-linked production hiatus,” Ampere stated. “As a consequence, delays for scripted titles ordered in the same period in 2020 — also exposed to the production shutdown — will run well into 2021.”

The firm noted BBC’s “Staged,” one of the few scripted drama titles to be produced during lockdown, has already been licensed in multiple markets, illustrating demand for fresh new scripted shows. The series, starring David Tennant and Michael Sheen, follows actors whose play has been put on hold due to COVID-19, but whose director has persuaded them to continue rehearsing online.

While the production of some scripted genres such as drama and romance can often be expedited, the ability to shorten the often lengthy post-production process for genres such as action and adventure, sci-fi and fantasy, and horror — while maintaining output quality — will be key to limiting the onward impact of the pandemic, the research firm stated. Programmers that can air the highest volume of new scripted content, through commissions or acquisitions, in the next 12 months will win over consumers, the firm concluded.

“COVID-19 has hit the production of high-quality, scripted content most severely, and producers will be fighting delays well into 2021,” said Ampere analyst Olivia Deane. “Linear programmers know that viewers won’t accept poor quality content and repeats indefinitely, and they will lose consumers to both broadcast and on-demand competitors if they don’t address the situation fast.

“This is particularly problematic for channels that offer a high proportion of original scripted content. To maintain a competitive edge, they will need to adjust their acquisition models to compete in the race to broadcast new, high-quality content. This suggests a time to shine for independent studios with scripted projects already in the pipeline. However, with indies facing their own delays, it’s likely that supply will be outweighed by demand for the foreseeable future.”