*This research brief is relevant as of February of 2021
Netflix is the leading platform in the video streaming industry. In terms of subscribers, Netflix holds the majority share of the market – currently measured at 27.6%.$^{1}$
However, the video streaming industry has become stifled with growing competition such that Netflix’s market dominance is becoming increasingly threatened such that Netflix subscribers are leaving for other alternatives.$^{2}$
Also, Netflix has fueled their growth by raising debt to finance the expenses of producing original content.$^3$ Thus, if Netflix does not find a solution to increase profits the corporation will tank.
Core Question: How can Netflix increase profits without incurring more debt?
<aside> 💡 Sub-Hypothesis 1: Netflix can decrease content costs per subscriber by decreasing the costs to produce content.
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In 2012 Netflix began producing original content, however content costs increased from $2.2 billion to 20.2 billion USD between 2011 and 2019 financing the spending through debt$^4$. From 2012 to 2021 there is a correlation between increasing content costs and the ratio of assets. $^5$$^,$$^6$ As Figure 1a, 1b illustrates, content costs increased exponentially as the ratio of assets of original to licensed content shifted to a near 1:1 in 2019 compared to 1:7 in 2016. However, subscriber growth has been unable to match$^6$.
Figure 1a: Netflix's global content assets from 2016 to 2020
Figure 1b: Netflix's cost of streaming content from 2011-2019
<aside> 💡 Sub- Hypothesis 2: Netflix can decrease the number of subscribers leaving to other platforms to sustain the market share
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The current average subscriptions per household have also increased. As Figure 2a shows, in three years the average subscription increased from two to three per household.$^7$ New players like Disney+ offer a niche experience by the way of removing content from Netflix’s catalogue. A 2019 survey, shown in Figure 2b, indicates that 32% of Netflix subscribers across all age groups would cancel their Netflix subscription if Disney content was removed.
Figure 2a: The average number of SVOD services per household over three years;
Figure 2b: The number of subscribers that will leave Netflix if content is removed