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Why Netflix’s Struggles Don’t Spell Doom for Streaming

Watching TV is fun
(Image credit: Future)

Since Netflix reported weak first-quarter 2022 subscriber additions in April, there has been an onslaught of punditry about the demise of streaming which runs counter to many of our numbers and forecasts. We estimate 89 million U.S. paid streaming subscriptions were added in 2021 and forecast 80 million additions in 2022, and 50 million in 2024, all highly robust.

For the most part, streaming is a replacement for TV subscriptions, as well as for box office, packaged sales and rentals. With 6 million to 7 million U.S. TV subscriber losses per year — double the annual losses of a half-decade ago — TV is the gift that keeps giving for the streaming business. Between cord-cutters, cord-nevers and those who still subscribe to traditional TV, the penetration rate of households that pay for streaming is higher than it ever was for television.

At its apex in 2016, U.S. TV access and advertising was a $181 billion business, versus $158 billion in 2021. Based on our forecasts, it will tally $140 billion in 2024 and $105 billion in 2027. That’s not a pretty growth picture.

Estimated U.S. TV Access and Advertising Revenue
2021$158 billion
2022$154 billion
2023$146 billion
2024$140 billion
2025$127 billon
2026$116 billion
2027$105 billion

Meanwhile, U.S. streaming access revenue grew 37% to $39.4 billion in 2021, and we forecast revenue of $51 billion in 2022 and $69 billion in 2024. At its current run rate, streaming access revenue will be over $91 billion in 2027 and, when combined with TV programmers’ streaming advertising revenue, would be larger than the legacy TV business.

Assuming TV subscribers continue to decline at 6 million to 7 million per year, TV access providers will be effectively disintermediated by their programming suppliers. Hence within a decade, traditional TV will no longer exist and streaming will be the only show, game or movie in town.

Programming and now streaming behemoths The Walt Disney Co., NBCUniversal, Paramount Global and Warner Bros. Discovery are all seeing impressive streaming subscriber gains but at the cost of lackluster TV advertising and programming sales revenue growth. At the same time, they’re being constrained by Amazon, Apple, Google and Netflix, which together represent almost half of U.S. streaming access revenue.

Further, these major programmers will not reach, based on their own forecasts, streaming profitability until 2024-2025, as content spend has grown exponentially to keep up with Amazon, Apple and Netflix.

Programmers’ profitability predicament has been punished by Wall Street with stocks down on average over 40% year over year, not that Amazon or Netflix have fared any better. Further, Netflix was cash flow positive for the first time in 2020, but not in 2021, and we assume on a standalone basis Amazon and Apple’s streaming businesses are not profitable. 

Consumer Benefit, Provider Pain

Thus far, the only real beneficiary of streaming has been the consumer, who between paid and advertising-supported streaming can now assemble programming at lower cost than a TV subscription. Given the lack of stickiness of most streaming offers, consumers can also easily sign up and then churn off subscriptions. Streaming has also ushered in a massive rise and diversity of programming.

How much streamers raise prices, add advertising or limit free viewing going forward remains to be seen.

That streaming is only going to become more pervasive and end TV as we know it does not mean streaming is a great business for most.

All numbers in this article are from Convergence’s annual Couch Potato report series. 

Brahm Eiley is president of The Convergence Research Group, a research and consulting firm.