Options could overwhelm consumers
Netflix (NFLX), as well as other online video services that have been gaining subscribers at the expense of traditional pay-TV companies, could have a hard time accelerating or sustaining robust growth. According to a report by consulting firm PwC, the market for online video services is becoming crowded. The crowding of this market is leading to a plethora of options for consumers that could, in turn, inhibit growth for providers.
For example, consumers feeling overwhelmed by the streaming options could return to a cable subscription, which can provide access to a mix of content in one convenient place. Online video services such as Netflix, Hulu, and Google’s (GOOGL) YouTube have been recruiting customers from the pool of consumers abandoning traditional cable plans for slimmer and usually cheaper online options.
Pressure on Netflix to spend more on programming
For Netflix, another source of pressure down the road could be traditional media companies expanding into the streaming market. Walt Disney (DIS) is withdrawing its content from Netflix as it launches its streaming service. Disney is a stakeholder in Hulu alongside 21st Century Fox (FOX)(FOXA), Comcast (CMCSA), and Time Warner (TWX).
Netflix may need to spend more on programming to make up for the loss of content from third-party suppliers such as Disney. With growing competition for subscribers, Netflix may also need to increase spending on original production to differentiate itself from the competition.
Rising programming costs
While original programming has helped Netflix deflect competition and attract more subscribers, creating original content is costly. Last year, the company spent more than $6.0 billion on programming. This year, its programming budget could increase to as much as $8.0 billion, eating into its profits.