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Netflix: right service, right time – but can it keep on competing?

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The RX Media report 2021 looks closely at the physical and digital sales of books, games, music and video & TV content as download and streaming services continue to grow.

As well as analysing the wider media landscape, we also focus on 10 media-selling brands from around the world and assess their growth pre-and post-pandemic.

Digital Editor, Scarlette Isaac, takes a glimpse at how Netflix is maintaining its competitive edge.

Netflix, famously rejected by Blockbuster Video in 1999, has seen extraordinary growth since 2015, tripling revenues between 2016 and 2020 and with consistent double-digit growth. It currently boasts more than 200 million subscribers.

The company, set up when streaming digital video entertainment content was more of a dream than a reality has very much found itself with the right product, in the right place, at the right time.

However, the market in which it operates has become increasingly competitive, with Disney, Apple, Amazon and other smaller players, all muscling in on the highly lucrative and rapidly expanding video streaming market. As a result, Netflix, while hugely cash rich currently, is seeing growth slow and the rate of new sign ups decline.

The problem the company faces is that it is still quite laden with debt and it needs to be able to pay this down and spend more to produce more content and more to acquire new subscribers. Balancing these factors is what will be keeping the company’s directors awake at night.

This was somewhat reversed in 2020 as the pandemic forced Netflix to reduce production, which saved money, while subscribers piled in as they looked for entertainment while in lockdown – this raised subscriptions with lower marketing outlay.

With the pandemic in retreat, the company is faced with having to produce more content to service and retain these new customers.

Analysts, however, still believe it’s poised for profitability by next year.

“We know that the company has launched in every market, and that original content investment reached a tipping point in 2020,” wrote Justin Patterson and SergioSegura, analysts at KeyBanc Capital Markets, in their most recent Netflix note. “Even with healthy reinvestment in content, we believe this positions the company toward sustainable [free cash flow] generation beginning in 2022.”

Moody’s analysts also expect Netflix to continue adding subscribers over a longer period, projecting the streamer to hit 250 million subscribers globally by late 2022.

The company has also signed a deal with Sony, which will give the streamer exclusive rights to Sony’s films after their theatrical and home entertainment release runs for five years, starting in 2022. Netflix will also get first-look rights on Sony’s direct-to-streaming content, some of which it has pledged to produce.

It has been widely reported that Netflix will pay more than $1bn for the deal. This is significant for Netflix as many of its earlier exclusive licensing deals have expired, the content pulled back by studios such as Disney to shore up their own, competing, streaming services.”

This article was originally published in the Media 2021 RetailX Sector Analyst Report.

For further insight into the wider media market across 2020, including key trends, growth vectors and best practices – download the full report now.

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