Netflix Is Evolving to Diversify Revenue in a Challenging Environment
Netflix Inc.'s (NASDAQ:NFLX) share price has plummeted, and the company is now facing an uphill battle to regain investors' trust. In April, shares of the streaming company fell substantially after reporting a decrease in subscribers for the first time since 2011. However, Netflix is becoming more than a streaming company, and the markets will eventually start acknowledging its new operating model.
Having started out as a DVD rental service, it has since transformed into a media company that offers streaming services for TV shows, movies and documentaries. Netflix is constantly changing and evolving to keep up with the latest trends in the entertainment industry.
For example, it introduced interactive movies and TV shows that allow viewers to make choices that affect the story's outcome. The company has also started expanding into the gaming space, making some acquisitions to boost its reputation amongst gamers. As Netflix continues to grow and change, it will be interesting to see what new and innovative ideas it comes up with.
How is Netflix evolving?
As a pioneer in streaming services, Netflix is a disruptor in the true sense of the word. It is also proving to be a lucrative investment for those who first saw its potential.
Originally a DVD-by-mail business, Netflix has been around since 1997. It transitioned to providing a streaming service in 2007 with at-home viewing of films and TV shows. The content from the company was then made available on many different devices, including the Xbox, Playstation, Apple TV and smart TVs.
From 2013 onward, Netflix has become a household name as the success of original series like "Narcos," "Stranger Things," "The Crown" and other productions have allowed viewers to binge-watch an entire series without having to wait. Consequently, the company's stock price soared, making it one of the hottest investments on Wall Street.
Despite its long history, Netflix could be in jeopardy as its growth slows. According to the latest data, The Walt Disney Co.'s (NYSE:DIS) Disney+ service surpassed it for the first time in terms of total subscribers.
With over 221 million total subscriptions across streaming services, Disney has assumed the top spot after managing to garner over 14.4 million subscribers for its much younger streaming service in the third quarter. The subscriber base compares very favorably with Netflix's reported 220.67 million total global subscribers as of the end of June.
To counter this downturn, Netflix has decided to pursue a more traditional strategy. Like legacy TV channels, the company has recently begun releasing individual or a small number of episodes of its shows over several weeks and months. While this is a slower rate for the streaming service, it allows the company more control over how the audience consumes content. The streaming service will start to show commercials as well, creating an avenue for ad revenue.
The company is also looking into changing its password policy to curb account sharing.
Netflix was not afraid to take risks, which led to it becoming very popular in the U.S. Now, it may need more conventional practices to keep evolving.
Netflix is investing heavily in gaming
Netflix is one of the most successful video streaming companies in the world, but it recently shifted its focus toward gaming.
The streaming company understands that it competes with all forms of entertainment and not just other shows on TV. It has built its business model to offer as many unique options for viewers as possible, and this strategy has paid off in a big way.
Popular recent Netflix purchases include Boss Fight Entertainment, Night School and Finnish game developer Next Games.
So far, Netflix has partnered with mobile game developers to produce games on its own IPs. The company that Netflix worked with to produce a "Stranger Things" mobile game was Next Games. But the company is not just limiting itself to one type of game; it is developing a host of original content, including first-person shooters, educational puzzle games and endless runner games.
While it initially focused on movies and TV shows, Netflix is now turning its attention to games. This change in strategy is already having a major impact on the gaming industry, and Netflix is poised to become a major player in the coming years.
Takeaway
Netflix is trying to perform in a challenging environment, and there are several reasons why it can become successful.
First, the compnay has shown an ability to adapt well to market changes, which has served it well in the past. Second, Netflix is changing its focus from being purely a streaming service to becoming a complete media company. Finally, it is continuing to evolve, which means it is constantly innovating and improving its service. This gives it a strong competitive advantage.
Netflix is an adaptable, forward-thinking company, making it well-positioned to continue performing well in a challenging environment.
This article first appeared on GuruFocus.
