Netflix And Disney Fall Victim To Inflated Wall Street Expectations

_{The likes of Disney and Netflix can’t expect subscriptions to exponentially rise indefinitely, but shareholder and media expectations have created an inability to spend less on streaming content.}

In the last week of 2021 and first week of 2022, Encanto made a big splash on the SDVOD ratings, so says Nielsen. The Walt Disney theatrical logged 2.2 billion minutes in its first week of Disney+ availability. That’s the second biggest week logged for a film via Nielsen, behind only the 2.3-billion-minute debut of Wonder Woman 1984 on HBO Max (while being available in theaters) over Christmas 2020. Don’t Look Up logged Netflix’s biggest movie viewership week ever (for Nielsen), with a 2 billion-minute first full week. The Book of Boba Fett logged 389 million minutes, which seems low except it’s for a single 35–39-minute (depending on if you watch the credits) episode, translating to around 11 million full viewings. Oh, and Cobra Kai nabbed a whopping 2.4 billion minutes during the December 31-January 2 “opening weekend” of its fourth season. 

Despite these flashy stats, Walt Disney’s stock took a big tumble in December 2021 on news that it had only amassed 2.1 million new subscriber households in the previous quarter. And just last week, Netflix’s stock plunged 40% after news that it too had added “only” 8.2 million new subscribers, a “mere” 8.9% increase over the last quarter. What we’re seeing is the conflict between Wall Street’s desire for continual growth versus the realities of a Covid-specific surge which potentially inflated the last two years’ worth of gains. In a vacuum, Netflix’s 218 million subscriber count and Disney+’s 118 million subscriber total are squarely in the realm of “excellent.” Yet the expectation of constant growth and ever-larger content spends is going to be a problem, especially if it turns out that the streaming marketplace as working on a Covid curve. 

Just offhand, Disney’s current total 118 million subscribers translates (giveaways, different market rates and bulk purchase discounts aside) to around almost $950 million a month and around $11 billion a year in raw revenue. That’s close to their unthinkably huge $12 billion in global box office receipts earned in 2019 thanks to a once-in-a-lifetime slate (Avengers: Endgame, Star Wars: The Rise of Skywalker, Toy Story 4, Frozen II, The Lion King, Aladdin, Captain Marvel, etc.) of A+ commercial offerings from their biggest brands. And even if subscriptions have stalled in North America and already-existing territories, Disney+ is going to expand into 42 new countries this year. However, specifically in already open-for-business markets, I’d imagine anyone who would sign up to Disney+ for Star Wars, Marvel, Pixar or Walt Disney Animation has already done so. The goal now must also be retention. 

To use an obvious example, AT&T’s “project popcorn” (whereby Warner Bros. offered their 2021 theatrical slate on HBO Max for the first 31 days of concurrent domestic theatrical release) was as much about retention (and activation of existing available accounts) as it was about massive subscription upswings. They used Wonder Woman 1984, as the buzzy bait, and then they continuously offered theatrical offerings (Godzilla Vs. Kong, Dune, King Richard, In the Heights, etc.) in the hopes that folks wouldn’t just watch the Gal Gadot superhero movie and cancel after that first month. To the extent that HBO Max was among the most downloaded apps of 2021, it was a relative success. Digression, but churn is always going to be a bigger issue for streaming than cable, as it’s so much easier to cancel a streaming subscription than to end your cable account.  

Alas, Wall Street has given both Walt Disney and Netflix essentially zero quarter for mere subscriber retention. Nor do they seem to care that huge subscriber upswings (Disney+ nabbed 86 million households in the first year and now has 118 million) of 2020 were partially due to a global pandemic which made at-home streaming the only game in town. Ditto Netflix, which added 36 million new subscribers in 2020 and around 19 million for 2021, obviously benefited from two years of “you can’t leave the house” global circumstances. Even 2021’s count of newbies was their lowest annual upswing since 2015. Wall Street seems surprised that Netflix isn’t keeping pace with the 2020 levels despite A) folks being able to consume entertainment outside of their house again and B) Netflix no longer being remotely the only high-profile game in town for at-home streaming.  

Not to say, “I told you not to make massive industry-wide changes in response to changed behaviors that were forced upon consumers by outside circumstances,” but maybe projecting the future of streaming amid years when it was unsafe to go outside might not have been the wisest long-term idea. However, Peacock reacted to a $1.7 billion loss (with just nine million paid subscribers) by pledging to spend $3 billion on added content. Sans shareholder expectations and media narratives, Disney, Netflix and the others could react to the changing marketplace by adjusting their content-specific expenses. But the sheer dollar amount spent on shows and films has become a status symbol for commitment and strength, becoming an arms race. It’s turned into a war of attrition with potential for mutually assured destruction (especially if the Department of Justice starts getting stricter about mergers).  

Disney is a giant corporation with varied revenue streams, while Amazon and Apple can treat streaming as a boutique item or prestige-builder. Unlike Viacom and AT&T, Comcast has (thus far) smartly refused to position their platform as the new center of the universe, but rather one revenue stream. Netflix is nothing but streaming. If Wall Street loses faith in the “eventually it’ll be profitable” variable (which has kept the stock high despite $17 billion in debt), well, let’s hope it gets sold by then. Even as it amasses once-unthinkable subscription levels and per-content viewership levels for their biggest originals, Netflix may go from the king of the mountain to the underdog upstart which got gob smacked when deeper-pocketed tech and entertainment rivals made them just another service that does the thing that every company now does (at prices now higher than much of its competition). 

In a sane world, Disney and Netflix would be fine an eventual result of 150-250 million global subscribers. However, they are expected to consistently increase their global subscriber count even as A) Covid circumstances change and B) the swift influx of new subscribers in Covid-afflicted 2020 (86 million for Disney+ and 38 million for Netflix) means that they may peak earlier than otherwise expected. Moreover, they are expected to outspend the competition, in this case with a reported $33 billion from Disney and $26 billion from Netflix alone in 2022. At some point subscribers are going to plateau and the streamers don’t yet have the choice to spend less on content lest they be seen as damaged or uncommitted. Hollywood chased Netflix’s share price, but I’d argue Wall Street may be sending them all (Comcast, AT&T, Viacom, etc.) over a cliff.