Netflix’s woes and CNN+'s cancellation may be the tip of the iceberg, heralding more trouble for streaming services.
The future of the entertainment industry is worrying investors.
Streaming giant Netflix recently rattled markets after announcing an unexpected fall in subscribers in the first quarter. The company, which has over 220 million paying users globally (most outside the US), reported a decline of 200,000 customers in the first three months of the year, far from the forecast increase of 2.5 million new users. Netflix estimates a further decline of 2 million subscribers in the second quarter. The company’s stock price plunged, wiping out more than $50 billion in market capitalization by the day after the announcement, dragging down the whole sector.
According to Netflix, several factors were to blame, including increased competition from new players, widespread password sharing and the war in Ukraine. Pulling out of Russia meant a loss of 700,000 users at once. A shrinking economy worldwide, that’s leading people to spend less on entertainment, didn’t help, either. Since the beginning of the year, about 1.5 million subscriptions were canceled in Great Britain alone for streaming services, including Netflix.
“While Netflix has clearly slowed down in terms of subscribers, the collapse in share price is more of a reaction to the disappointment of hypergrowth expectations,” notes Vikas Gupta, CEO at OmniScience Capital. “Netflix still forecasts double-digit profits thanks to price increases, advertisement revenue and monetization of shared passwords. We don’t see a fundamental crisis in the sector.”
Some investors, though, fear that Netflix’s woes are just the canary in the coal mine and that more pain might be in sight for the streaming industry.
On April 30, TV giant CNN shut down its streaming service CNN+ a month after its debut. In its first few days, CNN+ had reportedly failed to gather subscribers, even with super-low prices. CNN’s parent, WarnerMedia, which had shelled out tens of millions of dollars on CNN+, just finalized a megamerger with Discovery in one of the nation’s largest media buyouts. The new behemoth of entertainment also assumed $55 billion in debt.