Over the past few years, streaming services have been battling each other for market share by investing billions of dollars in content. However, as interest rates have risen post-pandemic, companies have shifted their focus to cutting costs and maximizing revenue from existing subscribers. At first glance, Netflix appears to be the winner as it has maintained its streaming dominance. But the real winner might actually be YouTube, which has seen the steepest increase in view time in 2022.
Netflix Stock Recovers While Other Streaming Services Struggle
In the late 2010s and during the pandemic, there was a streaming “gold rush” as major companies invested heavily in the apparently lucrative streaming market. Leaders like Netflix produced competitive original content, concerning legacy media companies that Silicon Valley was making a play for their business. In response, establishments like Disney, HBO, and Paramount launched their own streaming services. From 2020-2021, cheap borrowing costs and pandemic demand spurred further investment and content production.
However, in the past 18 months as interest rates have risen and subscriber growth stalled, the streaming gold rush ended. Many services started posting billion-dollar losses in 2022. In response, they focused less on subscriber growth and more on cutting costs and maximizing revenue from current subscribers. Steps included laying off staff, commissioning fewer shows, introducing ads, and cracking down on shared passwords.
This new economic reality has hit smaller streaming services hard, lacking the cash reserves of larger companies. Industry giants like Apple (with $160 billion in cash) could potentially acquire struggling startups.
Despite the downturn, Netflix had a comeback in 2023 after a 75% share price drop in 2022. Its stock has recovered around two-thirds of its value this year. Netflix’s revival is partially thanks to having the deepest content library, insulating it from Hollywood’s 2022 writer’s strike. Furthermore, its Q3 profits rose 20% year-over-year with 9 million new subscriber additions.
YouTube Views Surge Past Netflix
While not a typical streaming service, YouTube emerged as an even bigger winner in 2023. As services squeezed budgets and made streaming more expensive, YouTube usage surged.
Nielsen data showed YouTube accounted for 9% of TV viewing in 2023, leapfrogging Netflix’s 8.1% share. A year ago, YouTube had only 6.9% compared to Netflix’s 7.3%. In effect, YouTube now makes up nearly a quarter of total streaming time, more than any other platform.
YouTube’s steady revenue growth has continued, expected to top $30 billion in 2023 with ad rates higher than 2022 despite economic struggles. Individual YouTubers like MrBeast record view counts rivaling top Netflix shows.
The data suggests that as streaming became more expensive, more people abandoned paid services for free YouTube. Netflix even acknowledged this in its Q3 letter, noting “Our share of TV stream time in the US is greater than any streamer other than YouTube.” This signals an issue if streaming services rely more on ads and lose share of attention.
YouTube’s main challenge is converting casual viewers into paying subscribers. Services like YouTube TV and premium YouTube subscriptions, while growing, remain much smaller than competitors. But with streaming services squeezing budgets, YouTube stands to benefit the most from those seeking free alternatives.
Conclusion
While Netflix maintains its leadership in the streaming wars, YouTube emerged as the biggest winner in 2023. As economic conditions forced streaming services to reduce spending and raise prices, viewers turned to YouTube’s free alternative in record numbers. This positions YouTube well to convert more casual viewers into paying subscribers over time. We may see more acquisition moves in 2023 if interest rates remain high and put further pressure on streaming services’ budgets.