Meta And Netflix Stumble: When Titans Fall, Who Will Rise?

A lot has changed in media in the past weeks. Once Wall Street’s darlings, investors fear Meta’s dominance over the advertisement market is over; and with Netflix, they now doubt streaming will ever be a profitable business. For those who've been watching these companies for a long time as partners and/or competitors, this is a fascinating turn of events with some real consequences for the media landscape..The Streaming Question.Let's start with Netflix which just had a great October-December 2021 quarter, adding over 8.5 million subscribers globally. In Q1 2022 though, it predicts that it will add only 2.5 million subscribers (not all that bad, considering its large base). But it spooked investors, dragging down shares of all the other media companies with less successful streaming platforms. This is not just about slowing subscriber growth but about a perfect storm of streaming economics meeting a subscription equilibrium, something I had written about both more than a year ago for this column.While a few bad quarters for Netflix may not be a broader indication of the viability of the streaming business, there are some troubling questions for every company that has hitched its growth wagon to streaming..Streaming is no doubt still the future but the high cost of content acquisition was always going to start hurting at some point..Unlike Disney or other legacy broadcasters, Netflix is a pure streaming player.... that everyone is trying to catch up with. If Netflix with its 200-million-plus subscribers, charging a lot more than all the others (in the U.S at least), can’t turn a margin, can anyone else? Then there is the question of subscribers: what happens after your subscriber growth has plateaued?Broadcasters across the world have invested heavily in making the pivot to streaming. It’s a significant reason for some of the biggest global mergers and acquisitions in the media business like the recent Discovery-Warner Media merger or Disney’s Fox acquisition before that. We are seeing a lot of M&A action in India as well with the Zee-Sony merger and a potential stake sale by Viacom to Bodhi Tree Capital controlled by James Murdoch and former Disney Asia Chairman and CEO Uday Shankar..These point toward a future when even large sporting events like the Indian Premier League will go exclusively onto streaming platforms. The challenge, of course, is monetisation. In a price-sensitive market like India, the economics become even harder. Netflix has increased prices everywhere but cut them in India a few months back.The Indian market is in an endless loop of discounting for customer acquisition and subscriber growth. For instance, Disney’s Hotstar, which now makes more than one-third of Disney Plus’ global subscriptions isn’t profitable. As competition heats up for content, the economics isn’t going to get any better..Many traditional networks will shift from highly-reliable and profitable pay-TV offerings, which brought large subscription fees, to a far less stable streaming subscription model..Technology has made it impossible to not stake your future on streaming. But its path to profitability will be littered with the remains of streaming platforms that died paving it gold with amazing content..Duopoly’s Decline?.Meta’s fall from grace is even more astonishing. Meta’s fall can be attributed to a few things, chief among them is Apple’s new ‘App Tracking Transparency’ rules..Apple has been able to do what governments have not been able to, by simply changing privacy rules for applications in their app store..This is clearly hitting Meta’s ability to target ads efficiently. As I write this, Google just announced that it will introduce a similar privacy sandbox in Android. This could have severe repercussions for Meta’s ad business.In her piece Death of a Duopoly: Why It’s Time to Reconsider the Facebook-Google Rivalry, The Information Editor-in-Chief Jessica Lessin says that we are at an inflection point in technology (and hence, media) and suspects “…when we look back, we will see that Apple has delivered one of the death blows to the monolithic Facebook-Alphabet duopoly for sure.” However, even as Meta is struggling with these new rules, Google parent Alphabet just had a blowout quarter. Google has the added advantage of owning Android.But the bigger story is also that Meta is now in its late teens. And much like a teenager who has grown as tall as he or she will ever be, the main Facebook platform has stagnated on its number of users – in fact, it lost half a million users last quarter. You could argue that half a million is a fraction of nearly 2 billion users and it isn’t yet an existential threat for Meta which generated nearly $40 billion in profit last year, but it probably signals peak dominance.This has forced Meta to charge into new frontiers – from the creator economy to non-fungible tokens, virtual reality, etc. (it abandoned its digital currency plans). But as TikTok has shown in video, dominance for Meta in any of these areas is not guaranteed. For one, just renaming yourself Meta doesn’t mean you can conjure up a new future in something which, at best, looks vague at the moment..Media’s Opportunity.What does all this mean for the news media and media as a whole?Media companies in the developed world have had a great 2021. The New York Times recently crossed 10 million subscribers well ahead of its own timeline (helped by its acquisition of The Athletic and its 1.2 million subscribers) while the Financial Times is crossing one million digital subscribers this month. The media sector is the hottest it has been in years, seeing a string of big-valuation deals like Axel Springer’s acquisition of Politico for over a billion dollars. Bloomberg, quoting Pitchbook data says over $1.4 billion dollars have been poured into media companies in the United States and Europe. Companies like Axios, The Information, Puck, and others have already raised money and there are many more on the horizon. My former boss and friend Justin Smith recently stepped down as Bloomberg CEO to start his own global media startup with well-known New York Times columnist and former Buzzfeed Editor-in-Chief Ben Smith..Some of the reasons for this newfound investor and market enthusiasm for media is that digital advertising is back after a dismal 2020 and subscriptions have matured as a revenue stream..Then there are new revenue streams like live commerce, newsletters, reinvention of events, and NFTs driving this. Legacy media brands like Time Inc, have been rejuvenated by heavily experimenting with new revenue streams like NFTs. Legacy media often follows tech trends and is usually notoriously behind on them. CNN launched its streaming service CNN+ with much fanfare, for instance, others like Bloomberg already have their streaming products. No doubt, much like in entertainment, streaming is the future of live news, and almost every major publication is now behind a paywall. But both streaming and subscriptions will eventually see the same limitations for news media companies that you see in entertainment..Here, the mismatch on economics is even starker – live news is expensive while not commanding the same pricing power as entertainment..Also, how many separate streaming news platforms will you subscribe to? We are living in a world where we are bombarded with news and information. Bad news is not good news for media companies anymore. What we might see soon is fatigue with streaming, subscription, and news overall.The Reuters Institute’s Annual Digital News Report 2021notes that interest in news has already begun flagging in some countries, including the U.S. where it fell 11%, contrasting with how good a year it was for deals and investor interest. This possibly explains why New York Times’ growth is mostly from non-news categories.But in the short term, Apple’s and Android’s new rules level the playing field for news media companies to compete against Meta and other tech platforms like Twitter, Snap, etc. which have all seen their growth impacted. The platforms have also pulled back from news in some cases. Just two days ago, Meta announced it’s changed its ‘news feed’ to just a ‘feed’.This certainly opens up a gap, but how big a gap is still not certain. The hope is that publishers will be able to claw back some of the advertising revenue while continuing to grow their subscription business and then experiment. In India, news is going through its own turmoil but you are seeing subscriptions pick up slowly, especially for trusted brands. I now subscribe to more than four outlets after returning to India – in addition to the dozens of utility-based subscriptions. That’s a story for another day.There is no guarantee that this enthusiasm for news media will continue, but in the meantime, it’s not often that The New York Times is seen as more exciting than Facebook. Well, they did buy Wordle, so I’ll take it, however brief it is..Parry Ravindranathan is currently the CEO of Converj, a fintech start up he co-founded. He’s also been a journalist and a media executive working in senior roles at Bloomberg, Al Jazeera English, Network18 and CNN..The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.

Meta And Netflix Stumble: When Titans Fall, Who Will Rise?

The shifts we are seeing with Meta and Netflix have some real consequences for the media landscape, writes Parry Ravindranathan.

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