The Story
Netflix found itself in trouble last Wednesday as it reported its first drop in US subscribers in almost a decade. The internet giant had 130,000 fewer domestic subscribers in the second quarter of 2019, while its international subscriber growth also fell short of expectations.
In response, Netflix’s shares fell 11% on Thursday morning, its largest one-day percentage loss since June 2016.
Impact on Businesses and Law firms
You might be thinking: One quarter of missed results, what’s the big deal?
First, Netflix has been burning through enormous amounts of cash for many years. By issuing high yield debt (essentially high-risk bonds) and longer-term loans, it has been able to fund licensing agreements and original content.
Second, this news comes at a time when new rivals are pulling back their content as they enter the race. Comcast’s NBCUniversal is taking back The Office; while Warner Media, formed after the 2018 AT&T acquisition of Time Warner, is pulling Friends, the second most-watched Netflix show in 2019 by time spent.
Lenders and investors have so far been willing to overlook Netflix’s minimal profit because it promised fast subscriber growth and greater margins when it raised prices. However, with subscriber growth missing expectations and new rivals entering the market, there are doubts over Netflix’s ability to sustain its debt-heavy business model.
In addition to competition at home, Netflix must also navigate new regulations and competitors in international markets. For example, in the UK, ITV and the BBC recently announced their own streaming service after working together to produce BritBox. Their last joint venture attempt, Project Kangaroo, was rejected by the Competition Commission a decade ago. But this time, the media regulator Ofcom welcomed the move, with CMS and Hogan Lovells advising on the landmark deal.
With regulators trying to get to grips with overseeing competition in the digital age, it’s an interesting time to be a competition lawyer.
By Jaysen Sutton
