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The Netflix subscriber wobble raises new questions for Sony

In early 2022, Sony seemed to be emerging from the indoor plague years as the integrated entertainer it had always dreamed of being, a clear winner of the world’s new relationship with content and a master of the non-streamer business model of the Netflix era.

The Tokyo market, long accustomed to narrative fuzziness, embraced the unaccustomed clarity of Sony’s story. On Jan. 5, shares hit a 22-year high, pointing to that rarest of phenomena: a diverse group with multiple strategic bets that all seem to be paying off at once, and most importantly, a belief that the fun would last forever.

Doubts — and a 35 percent drop in shares — began Jan. 6, led by concerns that chip shortages were hurting the console business and that Microsoft’s deep pockets would make it a more formidable competitor than previous rounds of the Xbox-PlayStation struggle . But when Netflix stunned the investment world in April with a quarterly net loss in subscribers and forecast for an even deeper drop, all remaining certainties evaporated. Everyone loves an unstoppable juggernaut immune to a cost-of-living crisis, but Netflix now looks worryingly likely to be neither. The big question for Sony – now preeminent as a global all-in-entertainment conglomerate – is whether that makes it stronger or weaker.

It’s easy to see why investors were excited about Sony in early January. The games division, spearheaded by the flagship PlayStation 5 console, had spent lavishly on tactical acquisitions of small studios – some to expand the lucrative catalog of home-grown PS5 games, others to prepare the company for increased mobile competition and PCs to strengthen games. In music, Sony’s decades-long acquisition and catalog production looked perfect for the time: especially when artists could once again perform live. at movies, Spider-Man: No Way Home was three weeks in a run that became the highest-grossing film of 2021 and the sixth-highest of all time with worldwide grossing of $1.8 billion.

And critically, Sony appears to have made the right decisions regarding the streaming wars in both the TV and film businesses. Netflix, Disney, HBO, Hulu, Apple, and Amazon competed with each other as content providers and creators. But Sony’s “arms dealer” model meant not becoming a streamer itself, but rather selling its films and shows into the fray. This looked smart as long as it turned out great stuff (The Black List, Better call Saul) and that the fighters were willing to spend more money in their quest for supremacy.

But the big swing in Netflix subscribers could require a fundamental rethink: Analysts say the company will face the prospect of market saturation sooner than expected, and post-pandemic changes will benefit its competitors.

Netflix’s strength has been in spilling massive amounts of content onto its platform, of often quite niche interest, to satisfy a wide spectrum of tastes. The flagship blockbuster series from HBO, Disney, and others have been big draws for these services, but fewer in number and therefore less of a threat to the broader Netflix slosh. Netflix’s success, meanwhile, has encouraged more content providers to set up their own streaming services, strip Netflix of external content, and beat Netflix overall in its lineup of shows. That reach is getting even wider now as Covid-era production restrictions end.

For supporters of Sony’s strategy, the Netflix incident is encouraging. Indeed, if we’re entering a period where cost-conscious households are beginning to streamline their streaming services, then large independent content providers like Sony will have more weight. The music industry, says Jefferies analyst Atul Goyal, is the role model here: Sony, Warner and Universal Music have always been more valuable than Spotify, and this Netflix episode aims to make it clear to investors that content is more valuable than the platform.

However, others disagree. Netflix’s projection of a drop in subscribers could lock the parameters of the overall video streaming market in their current place, triggering a far uglier battle for market share and potential consolidation opportunities. If Netflix shareholders tighten their budgets to buy and fund shows and squeeze content providers, it could create headwinds for the Sony model.

However, this is less likely when the game is to beat all the comers. Before consolidation begins, overcapacities are a problem for streaming services in particular: As a large producer of films and TV, Sony’s arms dealer model works very well. However, once the consolidation begins, power shifts decisively to the winners and Sony becomes the classic prize taker.

leo.lewis@ft.com

The Netflix subscriber wobble raises new questions for Sony Source link The Netflix subscriber wobble raises new questions for Sony

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