Netflix Shares Drop After Disappointing Q3 Report; A Blip Or A Warning Sign?

Today Netflix
NFLX
reported adding 2.2 million new subscribers in Q3, well below the 28 million added in Q1 and Q2, combined. As a result of the surprisingly low number, Wall Street smacked Netflix by selling off shares, dropping the company’s value by 6%.

In its earnings call, Netflix was typically bullish about its future and described the subscriber drop-off as “predictable” given the extraordinary number of new subscriptions of the first two quarters, due largely to the world’s population “sheltering in place” as a result of the global pandemic.

That said, even Netflix expected more subscribers, predicting as many as 2.5 million for Q3, (with Wall Street analysts predicting as many as 3.3 million more) which most felt was a modest prediction at the time.

The fact that the streaming giant missed its own predictions is telling.

But what exactly does it “tell?”

As reported here and elsewhere, 2020 will be remembered for many things, but in the entertainment world, one of the biggest stories will be what we’ll call “the year of the streamer.”

Three of the world’s largest entertainment concerns – – The Walt Disney
DIS
Company, Warner Media and Comcast
CMCSA
NBC-Universa
UVV
l – – all launched premium streaming channels both in an effort to compete with Netflix and Amazon
AMZN
, and to respond to growing consumer preference to “cut the cord” connecting their home entertainment to expensive cable operators.

While Netflix diplomatically assured analysts that they are enthusiastic about competing with entertainment giants like Disney in the “Internet Entertainment” space, it stands to reason that with Disney alone adding more than 60 million subscribers in one year, Netflix is painfully experiencing real consumer debate over just how many subscription services a month a typical household is willing to bear.

For years, even with a giant like Amazon Prime
AMZN
competing with the streamer, Netflix appeared unstoppable.

With a footprint of over 195 million subscribers worldwide and an “all things for all people, in all lands” approach to acquisitions as well as original content, Netflix appeared indomitable.

Add to that the company’s tremendous line-up of Emmy and Oscar-nominated shows and movies, and you’ve got a powerhouse media story that is already historic, if not legendary.

What goes up, however, must come down.

While the streamer still boasts a market cap of $231.72 billion, larger than The Walt Disney company’s $225.79 billion – – Disney has only begun its streaming competition and it’s doing so at a pace and with a success rate that is awesome, even by Netflix’s jaw-dropping standards.

Both Disney and Netflix have had tremendous management shake-ups in recent months, as have Warner Media, Comcast NBC-Universal and Viacom
VIAB
/CBS
VIAC
. 

Netflix has promoted its Content Chief, Ted Sarandos, to the role of Co-CEO, sharing the title with the company’s founder, Reed Hastings. Bela Bajaria has replaced long-time programming head, Cindy Holland. Channing Dungey left Netflix recently to replace Peter Roth as Chairman of Warner Media’s TV Studio. Netflix’s comedy chief, Jane Wiseman, also recently departed the company. When asked about the musical chairs going on within Netflix, Hastings blithely remarked, “No one gets to keep their job for free. You’ve got to earn it every year.”

Disney, Warner Media, Comcast NBC-Universal and Viacom/CBS have made similar management shifts, all with the aim towards a more “streaming-centric” focus, with content chiefs in film, TV and consumer products all reporting into newly minted CEOs green-lighting content with digital as the main priority, versus the once more segregated approach of movies being made for movie theaters, TV shows being made for TV viewing, etc. 

The executive shake-ups at the entertainment verticals signal an abundantly clear message: all new studio content, whether it’s a movie or series, will be evaluated and ultimately approved by one standard – – how well will it stream?

While most of us will remember 2020 as one of the worst years in our recent history, due to a global pandemic with no end in sight, Hollywood will remember this year as the time when streaming supplanted everything – – movies, cable TV, network TV and theater.

Of course, much of this is due to the fact that Broadway and your local cineplex had to close, for safety’s sake.

But who knew how quickly Hollywood would pivot to streaming? 

And in many ways, equally surprising, who could’ve guessed how swiftly giants like Netflix could see their once bulletproof veneer show actual signs of cracking?