The streaming business in crisis

Choi Ji-young
The author is an economic news editor of the JoongAng Ilbo.

Netflix was called a “fallen angel” when it lost 200,000 subscribers from its customer base of 221.6 million in the January-March period, the first drop since the company began streaming 11 years ago.

Only a month ago, Netflix was optimistic about achieving the 500 million milestone in subscribers. The market and the streaming company had not anticipated such a sudden ebb. The stock lost 35 percent in a day.

Netflix is a pioneer in video streaming, which enables customers to watch movies and dramas of their choice at their desired time. The company has changed the fundamental way of watching a video through its on-demand function, nonstop to finish entire series, and on mobile devices. The first drop in the customer base of the first-mover in streaming came as a shock to the market.

Netflix admitted it could face challenges from strong newcomers. Earlier this year, Netflix founder and CEO Reed Hastings predicted that competitors like Amazon and Hulu could hurt its future growth. But the faster-than-expected slowdown of the dominant streaming company has stunned the global streaming and entertainment business.

The market is shocked after Netflix, the most powerful streaming company, lost subscribers. [AFP/YONHAP]

According to Parrot Analytics — a data science company that measures and predicts audience demand for media content across all platforms — viewership per series on Netflix’s rich drama and file database peaked and plateaued. In contrast, newer streamers like HBO Max and Disney + are enjoying double-digit growth in viewers per series.

The decline in subscribers could suggest the arrival of the moment of truth in the streaming market, which has been rapidly expanding since 2011. The streaming industry is in confusion without a dominant player. The fall of Netflix could scare entertainment companies that have placed all their eggs in the steaming service basket. They cannot know how much more they have to spend and how long they have to go on producing content to win.

Three home-grown streamers — Wavve, Tving, and Watcha — last year incurred operating losses of 55.8 billion won ($44 million), 76.2 billion won, and 24.8 billion won, respectively. They have been investing heavily to raise competitiveness, but how long they have to continue the investment cannot be known.

Aggressive investment to localize content and ensure independence in production should be the right thing to do in the content business. But watching Netflix, latecomers could be confused about business direction and outlook.

Fortunately, Korean content producers are less worried about the weakening of Netflix, thanks to their global hits like “Squid Game” and “All of Us are Dead.” Korean content is deemed excellent compared to their investments. Due to intensified competition, more steamers will fight over cost-effective quality contents.

Experts find Netflix’s weakness in being judged by the market based on subscriber count. Disney has theme parks and rich intellectual property banks of Marvel and Disney films. Amazon and Apple are based on tech, cloud and e-commerce and hardware businesses. Warner Brothers and Discovery, which recently merged, also make revenue from theaters.

Unlike internet and wireless subscriptions, streaming services are easy to leave. With competitors investing billions of dollars in their business, Netflix cannot keep consumers devoted to its platform. According to Deloitte, a quarter of U.S. viewer have canceled streaming services and rejoined within a year. Consumers are logging off and on depending on the programs available.

Cherry-picking in consumer behavior cannot be blamed. Even the pioneering and top company must endlessly deliberate how to attract and keep viewers. There is a lesson to be learned from the fall of Netflix.