Chasing the Wrong Prize.

Last month, Netflix announced a first quarter forecast of only 2.5 million new subscribers. That would be the weakest quarter for the world’s largest streaming service since 2010, when the majority of Netflix customers still got DVDs in the mail. The day after the announcement, Netflix shares tumbled more than 25%.

Disney+ has grown rapidly. The firm set a goal of 60 million subscribers by the end of 2024. They surpassed the goal in the first 12 months and now hope for as many as 260 million global subscribers by that date. 

Analysts and industry insiders are now predicting a lower ceiling for subscribers than originally anticipated. Top streaming services promise to spend more and more on content creation. Subscriber growth shows signs of slowing. This points to a much less appealing prize as many of these firms pivot from the highly-profitable cable television industry.

Morgan Stanley has projected Netflix annual revenue growth to slow from 15% or more each year to 10% or less. Netflix predicts operating margin will shrink for the first time in at least six years, to 19% and has attributed the decline to higher spending on content creation. 

Media firms will invest more than $230 billion in video content this year, nearly double the amount a decade ago. 

Some of this has to do with higher costs to create shows during a pandemic, but the real challenge seems to be appeasing consumers who used to switch cable TV providers only when they moved to a new region of the country.

Today, consumers binge popular content and cancel their streaming service the next week. Apple TV+ has the worst retention problem, with more than 10% of its customers churning each month. This means every year Apple churns through the equivalent of more than 100% of its members. 

With Apple and Amazon willing to burn through losses to create a handful of winners and bundle their platforms with other products and services, this appears to be the beginning of a long war to capture streaming memberships at much lower margins.

Of all the big players, Disney+ is positioned brilliantly to capture back-end revenue through the connection with consumers and their theme parks, hotels, cruise line, etc.

All the other players are likely to be caught in the middle of a great streaming re-bundling. WarnerMedia and Discovery have already announced a merger. There will be more as the table is reset in search of higher margin.

On a phone call with a senior VP for a large DSO, we lamented the fact that so many of the poor business practices in dentistry and orthodontics are only afforded to the respective professions because of high margins and limited competition. The table is being reset in our industry. Your margin is someone else’s opportunity. That’s why I’ll continue to insist you chase the right prize. 

It’s perfectly acceptable to invest in new technology, expansion and capacity so that you can grab market share. But you must also be determined, like Disney+, to capture as much margin as possible, so that you can invest where it matters: delivering the best experience, hiring the best employees, providing the highest-quality outcomes in world class facilities. 

When you chase these prizes, you build wealth and net worth. When you only chase higher patient volumes and revenue on razor-thin margins, you pursue a prize that is not worthy of your time, effort and attention.

If we’re going to take the time to run the race, let’s make sure we’re headed in the right direction and that we arrive at the correct finish line.