With Disney and AT&T both gearing up to join the streaming fray in 2019 alongside Hulu, YouTube and Amazon, it’s easy to see why Netflix investors might be getting wary of how it will compete in an increasingly crowded space.
But new Netflix (NFLX) streaming numbers from 7Park Data provided exclusively to Yahoo Finance reveals Netflix might be well prepared to weather the looming battle even as Disney and Fox pull their shows and movies from Netflix to feature them on their own respective platforms.
Netflix’s viewership, as measured by U.S. stream starts, has increasingly been fueled by its original content over the past two years. Netflix shows like “Stranger Things” and “House of Cards” have been able to captivate subscribers even as Fox pulled many of its TV series. Overall, Netflix original content accounted for 37% of streams in October, up from 24% the year prior and 14% in January 2017.
The viewership decline in Fox content on Netflix over the same time period is largely attributed to “Family Guy” and “How I Met Your Mother” being pulled for placement on Hulu instead. Following Disney’s acquisition of 21st Century Fox, the media giant is poised to own nearly all of Hulu. Disney is also preparing to pull its own content, including Marvel titles, from Netflix to be featured on its own streaming service called Disney+ when it launches in 2019.
Luckily for Netflix, the platform has seen content leave its platform in the past and has still managed to consistently add subscribers, according to 7Park Data analyst Thomas Craven. Worldwide subscribers has risen for 29 consecutive quarters, including a jump from 130 million to 137 million last quarter.
“For people who engage with Netflix content, when that content leaves they generally stick around to see new content,” Craven told Yahoo Finance, “But that may change when there are six other streaming services.”
Heightened competition from Disney and AT&T
Disney has accounted for 8%-12% of Netflix’s U.S. streams since the start of 2017, according to 7Park Data. That includes the popular ABC-produced series “Grey’s Anatomy,” which ranked among the top six most-viewed Netflix shows every month this year. Notably, the 317-episode series was created by Shona Rhimes, whom Netflix snagged in an exclusive 2017 development deal for a reported $150 million.
Ahead of Disney pulling its Marvel content, Netflix has also been killing off most of the original series it created featuring minor Marvel characters, including “Daredevil,” which premiered to immediate success in 2015. Netflix announced it was canceling the show on November 29 just weeks after it also canceled “Luke Cage” and “Iron Fist.” Netflix acquired independent comic book publisher Millarworld in 2017, but it remains to be seen if any of the shows it has in production can replace the void left by the Marvel titles.
Following its merger with Time Warner, AT&T is also poised to launch its own streaming service in 2019. That may have played a role in AT&T-owned WarnerMedia pushing for non-exclusivity in negotiations with Netflix’s quest to continue airing “Friend’s” reruns in 2019 and beyond. Netflix paid a reported $100 million a year to continue licensing the show, according to the New York Times, compared to the $30 million Netflix paid previously.
And while Netflix should take comfort in seeing its originals continue to garner a growing share of viewership, the outrage sparked by rumors “Friend’s” would no longer be available certainly provided some humility. After all, during November, “Friends” was Netflix’s third most-viewed show.
The problem for Netflix is that licensed content constitutes the lion’s share of viewership hours for Netflix. If the cost to acquire that content rises, the pressure for the company’s bets on its more expensive original titles to pay off could be higher stakes. Netflix has increasingly spent on its own shows. The company projected spending $8 billion on original programming this year, and Goldman Sachs projected that number could rise to more than $22 billion by 2022.
“The ability for those [Netflix originals] to be hits is really a hit or miss,” Craven said. “If they get a couple of hits they’ll probably be fine.”
As of Netflix’s last quarter, the company showed signs that its content spend was mounting. Long-term debt grew to $8.3 billion, up from $6.5 billion at the end of 2017.
With increased streaming competition launching in 2019 with Disney+ and AT&T’s new streaming platform, the question might no longer be if Netflix can keep subscribers engaged with content, but rather, how much it will cost the company to do so.
Zack Guzman is a senior writer and on-air reporter covering entrepreneurship, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.