10 million Netflix subscribers could begin to turn their subscriptions 'on and off' next year, as new rivals like HBO Max and Disney Plus change the marketplace (NFLX)

Business Insider Entertainment 1 month ago

Netflix may be drastically underestimating its competition from forthcoming services like Disney Plus and HBO Max, according to the Wall Street research firm Needham.

Needham analysts forecast in a report on Thursday that the streaming giant could lose 10 million US subscribers in 2020, or 16% of its US member base, if it didn't introduce a cheaper ad-supported offering.

The estimated 10 million subscribers aren't expected to abandon Netflix completely. Rather, Needham thinks more subscribers will turn their Netflix subscriptions on and off throughout the year as more alternatives emerge.

A subscriber might cancel Netflix for two months while they subscribe to HBO Max for "Westworld," return to Netflix for "Stranger Things," and then leave again when a popular Marvel show hits Disney Plus, for example. 

"It isn't that they'll stop for the whole year, but churn would increase," Laura Martin, the senior internet and media analyst at Needham, told Business Insider.

Needham arrived at the subscriber estimate after surveying existing Netflix subscribers in the US about their plans to subscribe to other services. It found that 30% intended to turn their Netflix subscriptions on and off as they look at other offerings.

Netflix has about 60 million US subscribers today. Needham estimated that the share of accounts that would be "off" throughout the 12 months of 2020 added up to about 10 million.

The prediction comes as more streaming rivals to Netflix are hitting the US market

On Friday, Apple launched Apple TV Plus, a $5-per-month service with original series and movies from the tech company. Disney Plus, Disney's $7-per-month family-friendly streaming service, lands on November 12. AT&T on Tuesday unveiled HBO Max, a $15-per-month offering that launches in May that will go after Netflix's audience with premium programming from HBO and general-audience content from elsewhere within WarnerMedia. And other services are slated to roll out next year from NBCUniversal, Discovery, and Quibi.

Needham has argued that Netflix needs a cheaper plan that's supported by ads to stave off the increasing competition without jeopardizing its revenue, Business Insider previously reported.

Netflix's standard and most popular plan costs $13 per month, and other offerings range from $9 to $16.

Needham's latest report recommends Netflix introduce a $4- to $7-per-month option with limited commercial breaks, similar to CBS All Access.

"What I care about is the revenue," Martin said. "When you add all that up," she said of the 10 million estimated subscriber losses, "that's revenue that isn't available to fund content, and therefore, they're going to have to take on more debt."

Netflix announced a $2 billion debt offering last month, which would add to the $12.4 billion long-term debt it recorded as of September.

The company said it would spend about $15 billion in cash on content this year, and some analysts don't think it will be able to curb that spending with more rivals on the way.

Netflix had hoped to reach 60 million to 90 million subscribers in the US and hit the smaller target during the third quarter. But growth has slowed in the country. During the second quarter, Netflix lost subscribers for the first time since 2011. It also missed forecasts for subscriber growth in the US during the third quarter.

With Netflix's audience becoming increasingly global, the company said it would stop reporting membership for the US as a standalone region, starting with its fourth-quarter report in January. It will report for the region of the US and Canada instead.


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