Netflix once again faces a pivot point

The streaming leader has been at the forefront of numerous pioneering pivots, adroitly shifting from DVD by mail to streaming TV and movies, to developing original programming outside traditional channels, to tapping international content and markets.

So what’s next?

It’s a question staring down Netflix as the company grapples with internal forecasts showing a sharp slowdown in subscriber growth beginning this year. Netflix officials disclosed the prediction during a fourth-quarter earnings report Thursday, contributing to a brutal 21% drop in the company’s stock as of late Friday morning. With the decline, Netflix’s stock is now down 33% since the start of the new year.

Netflix remains a dominant player in the streaming wars, standing strong as Amazon Prime, Disney+, and HBO Max gain market share. The company added another 18.2 million net subscribers in 2021—an increase of 9% year over year—and revenues continue to rise. 

Still, signs of trouble lie ahead. 

Netflix expects its net subscriber tally to jump 2.5 million in the first quarter of 2022, well off its recent pace. If recent trends hold up, much of that growth will come in the Asian, European, and Latin American markets, where Netflix’s average revenue per membership ($9.80) pales in comparison to the U.S. and Canada ($14.78).

Company officials partially attribute the slower growth to a price increase in the U.S., consumer financial strain tied to the pandemic, and a relatively light schedule of buzzy content to start the year.

But investors took note of a rare admission from Netflix in its shareholder letter Thursday, which warned that competition from rival streaming platforms “may be affecting our marginal growth some.” The concession comes on the heels of concerns raised by some analysts that Netflix has reached a domestic saturation point. (To be fair, pundits have been misguidedly crying market saturation for the better part of a decade.)

If Netflix truly has peaked in the U.S., the company will have to conjure yet another revenue stream to keep investors satisfied.

The most natural target remains international subscriber growth, particularly in Asia and Latin America. However, Netflix is struggling to make inroads in its biggest Asian target, India, where the company dropped subscription prices last month. Netflix executives also said Thursday that the impact of Latin America’s struggling economy on consumers has weighed down efforts to gain traction there. 

Netflix cofounder and co-CEO Reed Hastings voiced optimism in an earnings call Thursday about several ventures in the early stages of development—though it’s hard to envision any of them drawing dollars on par with video subscription revenues. The new products include a suite of mobile games, as well as live experiences and consumer products tied to Netflix franchises.

“If you think of a world in a few years where those are strong muscles, and you think of the next Bridgerton or Squid Game coming through, that’s when we hope to be able to really pull those pieces together,” Hastings said.

Netflix rightly faces hard questions in the near future. But if the past quarter-century has taught us anything, don’t bet against it.

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Jacob Carpenter

NEWSWORTHY

A Buckeye State bonanza. Chipmaker Intel plans to make a $20 billion investment in a design and manufacturing site near Columbus, Ohio, with the aim of turning the development into the world’s largest semiconductor hub. The announcement comes amid a global chip shortage that has strained supply chains, contributed to increased electronics prices, and prompted calls for deeper investment in domestic semiconductor manufacturing. Intel expects two manufacturing plants will be operational by 2025, with the potential to add up to six additional plants at the site in New Albany, Ohio.

Next stop: the Senate floor. A sweeping antitrust bill that would reduce the power of Big Tech’s largest companies cruised through a Senate committee Thursday, though its ultimate fate remains uncertain amid concerns about broader political support for the legislation, The Wall Street Journal reported. The Senate Judiciary Committee voted 16-6 to advance the American Innovation and Choice Online Act, which aims to stop Silicon Valley power players from favoring their own products on their platforms and halt the use of non-public sales data to squeeze out competitors, among other goals. While the bill has unusually strong bipartisan support, some legislators are wary of its scope and the targeting of only large corporations, such as Apple, Alphabet, and Meta.  

No black ops here. Microsoft’s gaming chief said Thursday that the company does not immediately plan to make the hit video game series Call of Duty into an Xbox-exclusive offering following the company’s expected $68.7 billion acquisition next year of the game’s developer, Activision Blizzard. The merger announcement this week raised questions about whether Call of Duty would remain available on Sony’s PlayStation consoles, which still outsells Microsoft’s Xbox hardware. Microsoft Gaming CEO Phil Spencer tweeted that he had calls this week with Sony leaders, during which he confirmed that the company’s “intent to honor all existing agreements upon acquisition of Activision Blizzard and our desire to keep Call of Duty on PlayStation.”

A very bumpy ride. Peloton’s share price bounced around Thursday and Friday amid confusion over whether the beleaguered at-home exercise company was scaling back production as product demand continued to fall. A CNBC report detailing a production freeze on Peloton’s most expensive stationary bicycle sent the company’s stock tumbling by 24% Thursday. However, the company’s CEO denied the report Thursday evening and blamed an unidentified leaker for spreading false information. Peloton shares rebounded by 10% as of late Friday morning trading.

FOOD FOR THOUGHT

Sayonara, dead presidents? The paper dollar isn’t going anywhere anytime soon, but the digital future might be coming for it. The Federal Reserve released a report Thursday detailing the potential benefits and drawbacks of issuing a central bank digital currency, without taking any sides on the matter, The New York Times reported. The pro side: potentially safer and faster transactions. The con side: it could destabilize financial markets, lending, and U.S. monetary policy. If you’re bewildered by blockchain, fear not. The digital dollar wouldn’t resemble a volatile cryptocurrency.

From the article: 

A central bank digital retail currency would, basically, be electronic cash. While consumers already use digital money when swiping a credit card or making online purchases, that money is actually backed by the banking sector. A Fed version would be backed by America’s central bank, just like a U.S. dollar bill.

Given the U.S. currency’s dominant position in global finance, the Fed has been clear that it is moving slowly and carefully as it weighs a digital dollar. And officials have emphasized that they would not move forward without congressional approval.

IN CASE YOU MISSED IT

Chipmakers cut corners to accelerate production as semiconductor crunch enters 2nd year, by Christiaan Hetzner

New York City Mayor Eric Adams gets his first paycheck in Bitcoin and Ethereum, by Yueqi Yang, Shelly Banjo, and Bloomberg

Mining Bitcoin may soon be banned in Russia, the world’s third largest crypto miner, by Evgenia Pismennaya, Andrey Biryukov, and Bloomberg

CEOs say the Great Resignation is their No. 1 concern, by Lance Lambert

I made $45 in 6 hours playing a video game blowing up right now that uses crypto to generate real cash—but there’s a huge catch, by Marco Quiroz-Gutierrez

BEFORE YOU GO

A new digital status symbol? For the NFT artwork fanatic who wants to show off their latest purchase and get noticed, Twitter is here for you. The social media company announced Thursday that it will spotlight users who choose a non-fungible token as their profile pic by turning their picture bubble into a hexagon shape. Of course, those customers must subscribe to Twitter’s $3-per-month Blue service, which hasn’t exactly lit the Internet on fire since its June debut. Though that’s pennies for someone like Eminem and his $462,000 NFT profile pic.