By Jon Swartz
It’s the calm before the competitive storm when streaming video giant Netflix Inc. is scheduled to report second-quarter financial results Wednesday after the market’s close.
For now, Netflix is the acknowledged market leader in streaming with more than 150 million members worldwide. Its stock /zigman2/quotes/202353025/composite NFLX -1.70% is up about 40% this year at $373 per share, compared to a gain of about 19% for the broader S&P 500. And its blockbuster show, “Stranger Things,” just started its third season.
But it can’t get too comfortable. Netflix faces substantially steeper competition in the U.S. later this year from some of the biggest content brands. Apple Inc. /zigman2/quotes/202934861/composite AAPL -0.81% and Walt Disney Co. /zigman2/quotes/203410047/composite DIS -2.56% plan to launch subscription services in 2019. AT&T Inc. /zigman2/quotes/203165245/composite T +1.06% subsidiary WarnerMedia, and Comcast Corp.’s /zigman2/quotes/209472081/composite CMCSA -0.55% NBCUniversal are expected to follow in 2020.
Netflix pooh-poohs any notions it faces a daunting gauntlet of would-be rivals. In recent months, the company has changed its definition of competitors.
“We compete with (and lose to) Fortnite more than HBO,” the company said in its letter to shareholders for the holiday quarter. Netflix’s focus “is not on Disney+, Amazon or others, but on how we can improve our experience for our members.”
It’s a mindset that analysts find hard to believe.
“As invincible as Netflix may seem to be, it ain’t,” Peter Csathy, founder of CREATV Media , said in a newsletter this year. “Disney, Apple and WarnerMedia SVODs [subscription video on demand] are coming later this year — joining Amazon and a host of others that are already hellbent on taking Netflix down a notch ... or several. So, this year Netflix will be challenged like never before. And, investors will feel it.”
Disney could pose the biggest threat. Its forthcoming service, Disney+, christened a “Netflix killer,” boasts some of the most popular and valuable content in the entertainment world. At $7 per month, or about half the cost of Netflix’s standard plan, it is a tempting alternative. UBS Securities last month calculated about 43% of U.S. survey respondents are interested in subscribing to Disney+. Another study, from research company Streaming Observer and Mindnet Analytics in late April, estimated 14% of Netflix subscribers would consider dropping the streaming service in favor of Disney+.
Deepening investors’ concerns is the possibility that Disney, Warner Bros., and Comcast withdraw their content from Netflix and not renew licensing deals, which would deprive Netflix of nearly 20% of its total content library in terms of programming hours, according to data from Ampere Analysis. Netflix already faces the loss of two sitcom libraries that have proven to be favorites of their audience.
“The Office” closes when Netflix’s deal with Comcast’s NBCUniversal expires at the end of 2020. NBCUniversal’s forthcoming direct-to-consumer platform will be the exclusive streaming home for the comedy, starting in 2021. Netflix’s $100 million deal to keep “Friends” exclusively on its platform ends at the end of this year, and WarnerMedia’s HBO Max will start airing all the show’s episodes in spring 2020.
Netflix's Hollywood Rivals Are Spoiling for a Fight
Disney, AT&T and Comcast have plans to enter the streaming-video ring, armed with well-known TV and movie brands. But can they hold their own against industry juggernaut Netflix? Photo illustration: Heather Seidel/The Wall Street Journal
This could force Netflix to replace that programming vacuum with pricey content. The Los Gatos, Calif.-based company spent $12.04 billion on content last year, up 35% from $8.9 billion in 2017, according to its fourth-quarter 2018 earnings report. In 2019, Wall Street analysts expect that figure to climb to $15 billion. Cowen analyst John Blackledge says a 52% increase in original programming year-over-year will serve as a “tailwind” for solid Q2 results. (He maintains an Outperform rating and price target of $455.)