When Netflix Inc., reported its latest quarterly results that showed more U.S. subscribers left the platform than signed up, many investors began sounding the death throes for the once unassailable digital streaming Goliath.
Is talk of Netflix’s demise premature?
The company is entering a new and potentially perilous chapter in its corporate history. In the span of a decade, the company transformed itself from a mail-order DVD business into the first digital streaming powerhouse. The company has remained king of the hill for the past several years, while other media players have been forced to play catch-up.
Sumner Redstone’s maxim that “content is king” is no less applicable today than it was when made years ago. The key issue for Netflix, in terms of remaining at the top slot, is how much can it spend on original content to ward off the Disney (NYSE:DIS) juggernaut and other media companies, such as AT&T (NYSE:T), soon to enter the streaming market?
The loss of the popular shows such as “Friends” and “The Office,” given their continuing popularity, no doubt had an impact on subscriber numbers. The big question for Netflix is will it be able to supplant the loss of popular network TV series with its own original offerings and how much will this endeavor cost?
One of the challenges facing Netflix is that it went on an original content spending spree approximately seven years ago as a means for retaining existing customers as well as attracting new subscribers. As evidenced by its revenue and new sign-ups, the strategy worked well. The company has committed a whopping $15 billion this year for original programming; this amount surpassed last year’s $13 billion sum.
CEO Reed Hastings anticipated the moment when other legacy media companies would enter the fray, looking to knock the heretofore untouchable Netflix off its digital streaming content perch.
The company’s original strategy to ward off the new competition on the horizon was to make itself the “Soviet” of streaming companies, where it would overpower rivals with brute