The OTT market has witnessed massive growth and competition in the past 2 years. This growth is the result of increased market penetration and adoption of smart streaming devices, huge investments in OTT content, and increased consumer/subscriber demand due to COVID-19 restrictions. Parks Associates data shows that as of Q1 2021, smart TVs are present in 56% of US broadband households, and the top ten SVOD services in the US have over 266 million subscribers combined.
Netflix’s announcement that it expects slower subscriber growth in Q1 2022, despite adding over 8.3 million subscribers in Q4 2021, signals a peak in the growth cycle for the OTT market. In a market that experienced tremendous growth in 2021, such an announcement came as a surprise to most investors. Nevertheless, the company’s revenue rose by 19% year over year to $30 billion at the end of 2021. Netflix also increased monthly subscriptions by 11% for subscribers in the US and Canada, citing the cost of content as the primary reason.
Investor fears over the market implications of lower subscriber growth and higher prices have led to a plunge in Netflix shares. But this is not the first time the company has increased prices; they were also raised in 2019 and 2020. The company’s data shows that despite price increases, most subscribers remain subscribed. Netflix offers a larger content library relative to other services, and the frequent release of new content seems to be its greatest competitive advantage. There still lies some level of uncertainty over its recent moves due to market conditions.
Competing OTT services are investing significantly in content; directly via original content production and indirectly through partnerships and licensing agreements - such as the recent deal between Discovery+ and NBC Universal. In the US, Amazon Prime Video, Disney+, and Hulu are Netflix’s top competitors, but it is too soon to know if they will respond competitively to Netflix’s new pricing strategy. Although Netflix did not significantly grow its subscribers in the US and Canada in 2021, vital metrics such as engagement were all positive. Only time will tell if Netflix will experience a higher churn rate and lower engagement relative to its competitors in the video streaming industry. Customers should expect to see significant new content from Netflix in 2022, to help justify the higher pricing in the minds of consumers. The company is expected to spend over $17 billion on content development in 2022. As an example of the pace and volume of the company’s content releases planned for 2022, the early part of the year will include anticipated titles such as Season 2 of Bridgerton and The Adam Project, as well as other 61 titles slated for release between January and March.
Netflix’s growth in 2022 may rely on its appeal with international audiences, mostly in EMEA, where it gained over 7 million new subscribers in 2021, and the Asia-Pacific region, where 7 million new subscribers were also gained last year. Given the huge success it achieved with its Korean-language series “Squid Game,” the company is expected to invest in continued growth of its catalogue of foreign language series to drive further growth across multiple regions.
