Netflix Tough Quarter Starts Streaming Biggest Stress Test –

After the 2008 financial crisis, Congress passed legislation requiring mandatory “stress tests” for Wall Street banks.

Financial institutions subject to the bill will have to pass a variety of tests, including “benchmark and severe negative scenarios” that include factors such as macroeconomic activity, revenues, prices and interest rates, among other factors. According to the Treasury Department, the purpose of stress tests, especially “strongly negative” hypotheses, is to “assess the strength and resilience of financial institutions.”

The video streaming business is now undergoing its own stress test, but this is not hypothetical.

Netflix’s shocking quarter, in which it lost subscribers for the first time in more than a decade, had a ripple effect on the entertainment business. The company’s stock price has openly dropped by more than 30 percent, analysts have downgraded the company sharply, and the company’s own forecasts have worsened. Shares in other companies, including Disney and Roku, also tumbled.

That’s probably a factor in why they’re doing so poorly on Tuesday. “I know this is frustrating for investors and it really is,” Hastings said, adding that the company is now “super focused” on “paying back the goodwill of our investors.”

For the famous Hastings, these comments amounted to five fire alarms. And that was reflected in the company’s quarterly report and in comments from other executives that were made during the earnings call.

Incursion into password sharing after a decade elsewhere? The company does this. Cheap layers backed by advertising after years of insisting the company would never be in the advertising business? They will pass. Does “retirement” spend on content after billions more each year? Now the company is trying to be “reasonable” about where it spends its money. Ave Maria Gambling on video games while the competition continues on TV and film? Netflix is ​​all inclusive.

Netflix is ​​throwing it all away, hoping that one or more of these steps can return the company to the “goodwill” of investors. But as daunting as this moment is for Netflix, it could be even more so for competitors like Disney, Paramount, Warner Bros. Discovery and NBCUniversal, each of which has reorganized and rebuilt itself around streaming video, all to look a little more like Netflix. , which has been a Wall Street favorite for years.

Now the street has doubts and the consequences for the rest of the business are enormous. The good news is that Disney et al. It’s just that Netflix is ​​the one that goes through the streaming stress test and does it in a very public, high-profile way.

While most of Netflix’s competitors already have ad-supported layers, and some can be more aggressive in stopping sharing, the sheer scale of Netflix will make it a point to see how profitable these strategies are.

But the downside to Netflix’s revenue was that executives also cited customer decline as a critical factor in lost revenue.

Last month, consultancy Deloitte published a report on the state of streaming, “The headline is that the delay will stay here,” said Jana Arbanas, vice president of Deloitte LLP and US Telecom, a leader in media and entertainment. the hollywood reporter.

“It was not a one-time uprising,” Arbanass added. “Broadcasters will have to deal with this constant instability with subscribers.

Unlike cable TV, streaming services make it easy to get around. The end result is that once users see what they came for, they can unsubscribe from one service in favor of another, potentially coming back months later when the new season of their favorite show ends. According to Deloitte, young consumers are particularly comfortable with this offer.

Services like Disney+ and HBO Max are trying to combat it, releasing new episodes weekly and amazing releases to keep subscribers and of course cheaper ad-supported plans. Netflix has avoided weekly releases based on user experience, but given all the prominence (including advertising) in the quarter, could such a move be unlikely?

And then there is the reading of the data. Netflix has long prided itself on knowing what users want to watch before they watch. But with all the new contests, is Netflix data enough? The company has released a new version of “Two Things Above”, suggesting it thinks it can do more.

“In terms of the amount of data about a user’s habits (shopping, viewing, music, gaming and entertainment), Netflix has only one point of contact with the user,” said Andre Swanston, senior vice president of media and entertainment. . from TransUnion. THR On email. “Your competitors (Amazon, Disney, etc.) better understand consumers’ lifestyles (e-commerce, live events, sports, etc.) and how best to interact with them.”

This is just one of the many questions facing the streaming business, and while Netflix now lives in it, the questions could extend to all businesses as well.

Can streaming advertising work if too many high-income families refuse to buy? Will password sharing crack increase subscribers if it pushes users? How low can content spend really be in such a competitive market?

And perhaps the most alarming question, summed up by Fox Sports Executive Vice President Michael Mulvihil, tweeted last November: ? ”

added mulvihil retvit Wednesday: “It’s not just a thinking exercise anymore.”