Netflix’s U.S. subscriber base could be in peril, according to a new analysis.
The streaming giant is poised to lose 4 million subscribers in the U.S. -- its largest market -- during 2020, Needham analysts wrote this week, arguing that Netflix’s high price compared to competitors such as Disney+ (DIS) - Get Report, Hulu and Comcast’s (CMCSA) - Get Report Peacock will drive away a meaningful number of consumers. Netlix (NFLX) - Get Report shares were up 1.0% on Thursday to $383.78.
Citing Nielsen survey data, Needham analyst Laura Martin suggested that increasing saturation in the SVOD (subscription video on demand) market means that content is no longer king, at least in the U.S. Netflix had 67 million subscribers in the U.S. and Canada as of last quarter, while Disney earlier this month reported that Disney+ had accumulated 28.6 million paid subscribers just since its November launch,
“For 84% of respondents, cost is the most important attribute for an SVOD service, so Netflix priced at $9-16 per month, which is 30-100% above Disney+, Apple+, CBS All Access, Peacock, etc., implies sub losses,” Martin wrote.
Each of the above services are priced in the range of roughly $5 to $7 per month. Comcast’s Peacock, which is due to launch in April, will offer three tiers: A free, ad-supported tier with more limited content, a $5 ad-supported tier with all available content and a totally ad-free $10 tier.
Martin posited that Netflix’s balance sheet “cannot withstand lower revenue,” and suggested that Netflix add a lower-priced, $5-7 per month that features some ads. Netflix has consistently said that it will remain ad-free.
Netflix is banking on strength in international markets to fuel its financial performance. For the December quarter, Netflix added fewer domestic subscribers than expected -- 550,000 subscribers in the U.S. and Canada, below a consensus of 600,000 -- but outpaced expectations on the international front.
Its first quarter guidance, however, was weaker than expected. For Q1, Netflix guided for 7 million streaming net adds globally, short of the 8.88 million expected by analysts. That forecast “reflects the continued, slightly elevated churn levels we are seeing in the US plus an expectation for more balanced paid net adds across Q1 and Q2 this year," Netflix wrote in its shareholder letter.
For its part, Disney said that it expects new Marvel series launching later this year to spur further domestic growth. Disney+ is also due to launch in Western Europe and India in March.