Netflix’s business soared during the pandemic, but as it heads into 2021 and faces a potential shortage of films and movies, the company will have to prove it can continue performing.
Netflix reported its third quarter earnings today, and although Netflix is acknowledging slower growth, the company is still adding subscribers. The company added 2.2 million net subscribers in Q3, compared with the company’s 2.5m guidance. The company saw $6.44 billion in revenue, beating expectations. Still, the looming question for co-CEOs Reed Hastings and Ted Sarandos is how they plan to ensure Netflix won’t run out of things to watch.
“The state of the pandemic and its impact continues to make projections very uncertain, but as the world hopefully recovers in 2021, we would expect that our growth will revert back to levels similar to pre-COVID,” Netflix’s letter to shareholders reads. “ In turn, we expect paid net adds are likely to be down year over year in the first half of 2021 as compared to the big spike in paid net adds we experienced in the first half of 2020.”
The biggest advantage Netflix had over its competitors until now was a constant stream of new shows and films. That’s because by the time the pandemic hit, content for Netflix’s 2020 year was largely shot and in post-production, able to be finished remotely. Now, Netflix is about to be in the same boat as its competitors. Hastings and Sarandos have spoken about how difficult getting back into production has been, especially in the United States.
“Netflix was better positioned for this, but it can’t last forever,” Ross Benes, an analyst at E-Marketer who covers Netflix, told The Verge. “If you’re going to have Hollywood shut down for nine months, at some point that’s going to catch up to you.”
If subscriber growth continues, Netflix can take that additional revenue and expand its content budget even more. Pivotal Research Group’s Jeff Wlodarczak noted that the more Netflix can reinvest in original programming, the more it “increases the potential target market for their service and reduces existing subscriber churn,” according to The Hollywood Reporter.
Right now, Netflix’s advantages offset its hardships, but that could change. Netflix has a massive subscriber base and a full library, but production woes and a number of canceled series have soured some subscribers. It might not be an issue that Netflix encounters in its next quarter, but it’s certainly a complaint the company will have to address, Benes argued.
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