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Can Netflix Protect the Throne in the Streaming Wars?

Streaming video giant Netflix has come a long way from its early days of mailing physical copies of DVDs to its customers across the country.

After an important strategic pivot in 2007 that essentially disrupted the entire entertainment industry, the company’s platform is now streaming in over 190 countries and 30 different languages and reaches over 200 million subscribers

Over the last decade, Netflix  (NFLX) - Get Netflix, Inc. Report has become the default subscription-based on-demand video platform for consumers and rewarded early investors handsomely with massive gains since going public.

The company has consistently grown its customer base thanks to unique content, an easy-to-use interface, data-driven recommendations, and long-term changes in consumer preferences.

Then the global pandemic came along and only accelerated the widespread adoption of these types of streaming video platforms.

With that said, Netflix has some work to do in order to fend off competition from the likes of Amazon  (AMZN) - Get Amazon.com, Inc. Report, Disney  (DIS) - Get Walt Disney Company Report, Apple  (AAPL) - Get Apple Inc. Report, HBO Max, Peacock  (CMCSA) - Get Comcast Corporation Class A Report and Paramount+  (VIACA) - Get ViacomCBS Inc. Class A Report

As the streaming wars continue to heat up, both current and prospective investors might be wondering just what the company can do to continue its torrid pace of growth.

Last week, Netflix said it would be increasing its prices across all plans in the U.S. and Canada which should provide a boost to the top-line going forward, but might also be a sign that user growth is slowing.

With the stock down 12% year-to-date and 25% from its all-time highs last November, Netflix will need to come through in a big way when the company reports its Q4 earnings on January 20th to avoid any further downside.

Regardless of how Netflix stock performs in the near term, there are a few different strategies that the company might implement to continue winning the streaming wars. Let’s take a deeper look at them below.

Netflix Continues to Invest Big in Original Content

Netflix’s business model relies heavily on the company’s ability to attract new subscribers, which pay either $9.99, $15.49, or $19.99, up from $8.99, $13.99, or $17.99 per month last year depending on the plan they select.

This is recurring revenue that brings in millions of dollars to the company each quarter, so naturally, it makes sense that investors want to see the number of subscribers increasing on a consistent basis.

Part of what has helped Netflix become such a powerhouse in the entertainment industry is the company’s original content, which is definitely one of the best ways the company can continue attracting new customers.

Popular programs like "House of Cards," "Bridgerton," "Squid Game," and "The Queen’s Gambit" have played an important role in the cultural zeitgeist, and Netflix desperately needs more hits like those to separate itself in a crowded market.

The good news is that the company is already spending big to expand its content offerings.

Acquisitions including the recent $700 million purchase of Roald Dahl Story Co. -  Charlie and the Chocolate Factory, Matilda, The BFG, James and the Giant Peach, Fantastic Mr. Fox, and The Twits -  which gives Netflix the rights to some of the most popular children’s stories of all time, point towards an aggressive content creation strategy going forward.

The company is also leveraging its existing popular franchises including Stranger Things, Ozark, The Crown, and more to continue setting its library apart from competitors.

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According to S&P Global Market Intelligence’s Kagan media research unit, the company would have spent roughly $13.6 billion in total content costs in 2021, including $5.21 billion for originals.

This total is up from $10.81 billion in 2020 and $9.22 billion in 2019, which tells us that the company’s management understands content is king in the streaming wars.

This year should be another period of heavy investment in content from Netflix as well, with Financial Times reporting that the company could spend upwards of $17 billion on content in 2022.

While it’s clear that Netflix is committed to spending big on growing its content library, this number still falls well below Disney’s $33 billion spend on new content in 2022, although Disney’s total includes roughly $10 billion on sports rights. 

Speaking of sports, it’s a bit strange that Netflix hasn’t explored offering live sports for its streaming subscribers, which is another potentially lucrative growth opportunity given how many additional viewers it could bring in.

Finally, it’s worth noting that Netflix can continue to leverage its proprietary algorithm to learn more about what its subscribers want and in turn deliver better content, which is one advantage that competitors are a long way off from replicating.

Netflix didn't immediately return a request to comment.

Netflix Focuses On International  Growth

Another possible way forward for Netflix is continued growth in international markets, especially when you stop to consider how so many households around the world still don’t have access to the internet.

Areas like the Asia Pacific, Latin America, and EMEA offer a massive opportunity for the company, particularly since Netflix is facing more and more competition domestically.

One of the ways the company can attract these international users is to market its content to a global audience.

Look no further than the company’s recent success with Korean produced show “Squid Game”, which received views from approximately 142 million households in the first four weeks of the show’s release and led to strong subscriber growth in that region.

According to a Bloomberg News report, Squid Game’s success equated to roughly $891 million in additional value for the company, which provides some confirmation of just how rewarding a focus on international market growth can be.

Other recent international hits include Spanish production “Money Heist” and French production “Lupin”.

"We are now producing local TV and film in approximately 45 countries and have built deep relationships with creative communities around the world", the company said during its third-quarter earnings in October.

When the company has a hit show from a country outside of the United States, it can lead to new subscribers in those markets and a word-of-mouth effect that exposes the company’s platform to entirely new customer bases.

"For the second consecutive quarter, the APAC (Asia-Pacific) region was our largest contributor to membership growth with 2.2m paid net adds (half of total paid net adds) as we are continuing to improve our service in this region", said the company.

"In EMEA, paid net adds of 1.8m improved sequentially vs. the 188k in Q2 as several titles had a particularly strong impact." 

In addition to international content, the company is trying to attract new subscribers by offering lower-cost subscription plans in emerging markets, another move that could pay off in a big way.

Netflix Is Pursuing Video Games and Third-Party Licensing

Finally, it makes sense for Netflix to explore licensing some of its original content to third-party platforms in exchange for additional revenue.

One of the big draws to Netflix is that the company’s platform doesn’t feature advertising, but putting together deals that leverage the company’s massive content library could give new life to old programs and start to bring in advertising revenue from third-party platforms.

Then there’s the potential for the company in the video games industry, as Netflix acquired video games developer Night School Studio back in 2021.

Offering a streaming platform for games could be what takes the company to the next level, particularly considering that the multi-billion-dollar video game industry is expected to grow at a compound annual growth rate (CAGR) of over 13% from 2021 to 2028.