Netflix Won the Year and the Streaming Wars. What Comes Next?

Disney seems to have taken John Lennon’s holiday-season advice to heart this year — “War is over, if you want it.”  

The Mouse House’s new licensing deal with Netflix all but confirms what was becoming more and more apparent for most of 2023: The Big Red N has won the streaming wars. 

After all, can you really call it a war when all but one of the combatants are in full-on survival mode — and now selling arms to their dominant opponent? The studios’ grand push into streaming has ultimately done little but drag down their market values and accelerate the decline of their linear TV and theatrical film revenue streams, a drop Netflix kick-started in the first place. 

Unburdened by such headaches and boasting a healthy balance sheet, Netflix is still treated more like a tech company than a media business on Wall Street; its stock is once again trading at pandemic-era levels, albeit far below the all-time high it reached in fall 2021. The streamer’s comeback from its annus horribilis of 2022 — which, in hindsight, looks more like just a couple of bad quarters — has been nothing short of remarkable. 

Meanwhile, Netflix’s original content slate actually saw a bit of a slump this year, failing to produce another blockbuster hit on the scale of 2022’s “Stranger Things 4,” “Dahmer” and “Wednesday.” The streamer’s biggest success story of 2023 was a non-exclusive title licensed from one of the legacy studios, which counterintuitively underscored its heft in the streaming space.

Indeed, the eye-popping performance of “Suits” on Netflix this year illustrated the power of the company’s unique position as a licensed-content aggregator, coupled with its still unrivaled subscriber scale and ability to create demand for a title out of thin air. Or, more precisely, out of the self-perpetuating feedback loop of its audience’s behavior: Many users seem to watch what’s popular on Netflix because it’s popular on Netflix, fueling word-of-mouth successes including “Squid Game” and “Suits.”

Is it any wonder, then, that Netflix trotted out a vast data disclosure showcasing the engagement levels for popular licensed titles on the service? The message was clear: Content with next to no value, gathering dust in a studio’s proprietary SVOD library, can become a blockbuster when run through Netflix’s engagement-generating machine.

Co-CEO Ted Sarandos essentially noted as much earlier this month during a press call announcing its viewership report. “What is interesting is a show like ‘Suits,’ which has been played on USA for a long time, had been available on Peacock and had been available on Amazon for a couple of years before it hit Netflix, and yet we were able to unlock this enormous global audience for it,” he said.

EXCLUSIVE: New data shows what Netflix’s data dump doesn’t

In other words: Studios, ask yourselves what Netflix can do for you (and what you can do for Netflix). The next year is certain to see more licensed titles flowing to the platform, as its rivals-turned-suppliers seek more cash infusions to brighten their balance sheets and help push their streaming businesses into the black — with the studios’ self-imposed deadline for profitability, the end of 2024, swiftly approaching. (We’ll have more thoughts on the traditional studios’ evolving strategies for 2024 next week.)

With no such deadline to worry about, the question for Netflix becomes, What’s next? 

The streamer’s other big success story of the year was defying expectations for its password-sharing crackdown, which helped net 14.7 million added subscribers across Q2 and Q3 — more than were gained in all of 2022. It’s debatable how long this surge can continue, as it’s always been primarily a short-term growth strategy, but the crackdown has undoubtedly accomplished what it was meant to do.

Meanwhile, Netflix’s ad-supported tier (whose lower price point likely also helped fuel some of that subscriber growth) has continued to grow relatively slowly and has yet to contribute materially to the streamer’s revenues. But the long-term opportunity here remains significant, and Insider Intelligence projects Netflix’s U.S. ad revenue will already surpass that of Disney+ next year.

The only real challenge for Netflix right now is figuring out how to continue growth (read: please our obsessively growth-focused market) when those revenue streams are exhausted.

There are several opportunities on the table; as I’ve written, the streamer’s gaming ventures have potential, and it seems inevitable that Netflix will bring live sports broadcasts to the service at some point (beyond its preliminary experiments this year, anyway). This should help continue to grow ad revenues through high-value partnerships, potentially bringing an incremental audience to the service as well.

Meanwhile on the content side, Netflix is actively looking for opportunities to turn its hit properties into franchises, with a “Wednesday” spinoff already in the works. Such franchises could carry the potential to expand into offscreen experiences as well, an opportunity Netflix seems keen to pursue.

The streamer continues to shy away from wide theatrical film releases for the time being, an understandable position given the expense of marketing and properly executing such a rollout. Yet I continue to advocate for a broader theatrical strategy, which would likely help boost engagement for original movies on the service and open another new revenue stream, albeit a limited one.

Perhaps that will come in a time of desperation, as ads and the password crackdown did. For now, Netflix has options and plenty of time to bask in victory and weigh its next move — at least until the next bad quarter comes around.