Netflix Is Screwed, And Other Predictions From Needham’s Laura Martin

Netflix’s future is bleak – and not just because of the onslaught of competition in 2020. The particular players and how they’re going to market are also problematic for the streaming giant.

Netflix’s single revenue stream is about to enter a price war, noted Laura Martin, senior analyst at the investment bank Needham and Company, speaking Tuesday at AdExchanger’s Industry Preview conference in New York City.

Disney Plus might be a new entrant, but at $6.99 a month, it’s cheaper than Netflix, whose plans range from $8.99 to $15.99 per month.

“At a single price point of $16 per month, it cannot compete with the services at a $5 price point,” Martin said, meaning that a $16 monthly service will be replaced by something at $7 per month as long as it’s substitutable.

She also doesn’t buy into Netflix’s insistence that making great content is enough.

Content makers must spend as much on marketing as they do on content – and with NBC, Disney and Apple entering the rink, the “juggernaut marketers” have arrived, Martin said.

“[They have] big deep pockets, big strong balance sheets and people who’ve competed over the last 20 years,” she said.

And with 60 million subscriptions in the United States, Netflix has nowhere to go but down.

Clever bundling keeps subscribers from churning

Netflix’s competitors have strong brands and balance sheets, but they’ve also shown they can create clever bundles that keep subscribers from moving on.

Amazon Prime is the most obvious example. “When you ask people which SVOD services they have, they always forget Amazon Prime, because they’re not buying it for the TV, but for shipping,” Martin said. “When you can bundle something in, it makes the SVOD payment invisible.”

And Disney Plus and Apple are both really good at bundling.

If you buy an Apple device, you get a year of Apple TV. And some Verizon customers get a free year of Disney Plus. Linking SVOD offerings to device purchases and telco services means millions of consumers automatically have intent to subscribe.

Disney is also bundling with time – buy a three-year subscription and get a discount.

Needham anticipates even more bundling creativity in the near future.

“I think in two years, when you go to a Disney theme park, they’ll give you Disney Plus for free,” Martin said.

AVOD is undervalued

Services such as Pluto, Crackle, Roku TV or Tubi TV may not have the sex appeal of their SVOD counterparts, but they’ve got a lot of upside.

“As the wealthy adopt more SVOD, they leave ad-driven TV,” Martin said. “And therefore ad reach becomes more valuable, scarce and rare, especially with young viewers who are the heaviest streamers.”

She noted that streams the same content as CBS, but it skews younger. So rarity drives the value of that reach.

Plus, AVOD services have significant data advantages. Since they own their own data, they can lower their cost per acquisition and increase their CPMs.

Roku doesn’t sell a single ad unit under $30, and that’s 50% higher than the TV ecosystem,” Martin said.

Streaming services shouldn’t choose between SVOD and AVOD

Wall Street loves multiple revenue streams, Martin said. And many streaming services kneecap themselves by committing to being either SVOD or AVOD.

“You know what we hate?” Martin said. “We hate it when you have a single revenue stream and we wake up, read The Wall Street Journal, and it says: ‘Ad Blockers Threaten Advertising.’ Scares the shit out of us.”

Because most streaming services are committed to a single revenue stream, Martin doesn’t believe they can actually replace linear TV. Instead of diversifying, the commitment to go AVOD or SVOD saddles services such as Netflix and Roku with extra risk, which leads to lower Wall Street valuations.

By contrast, NBCU’s upcoming Peacock service will launch with free, $5 and $10 price point options. It will also take advantage of the network’s massive library, with 15,000 hours of programming, and it will debut in conjunction with the Olympics.

“That’s really smart of them,” Martin said.

YouTube will do better if it gets away from Google

YouTube might be the OG online video portal, but the competition is coming fast and furious, and YouTube has been consistently plagued with recurring boycotts, trust issues and brand safety concerns. Those factors are significant challenges for an ad-supported video platform.

And because YouTube hasn’t figured out these issues, Martin argued it would do better if it were split from its parent.

“YouTube would do better work if it had a CEO tasked with being yelled at by analysts like me as to why they’re being boycotted by Coke, again,” she said.

Torn away from Google, YouTube would have more accountability and wouldn’t have the problems it has now.

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1 Comment

  1. Rick Howe

    The television business has known for decades that a single revenue model is risky. And as we have been saying, in spite of denials from Netflix, as growth slows and the content bills come due, advertising (or sponsorship) at Netflix is inevitable.