Netflix Struggles to Regain Engagement Momentum, Escape YouTube’s Shadow

It’s a new day in Hollywood, with Paramount’s acquisition of Warner Bros. Discovery looking closer to completion than ever (provided it completed its court-mandated weekend “homework.”)

And that means more attention on what rival Netflix can do about its sinking share price. The stock received its second key analyst downgrade in as many weeks, and is now down nearly 21% this year. So why the skepticism for the undisputed victor of the Streaming Wars? No, it’s not fear of David Ellison’s new media empire, but rather the persistent threat of its now longtime archrival YouTube.

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When Wells Fargo analyst Steve Cahall downgraded the stock to a sell-equivalent rating on September 18, his reasoning was succinct: “TLDR: NFLX has lacked big original series & it’s showing.” The knock on the platform’s slowing engagement numbers is not new, and has been nagging Wall Street all year. In a downgrade to hold from buy last Tuesday, HSBC analyst Mohammed Khallouf positioned the problem in even more troubling terms. “YouTube has been rapidly expanding its living room footprint, having captured a record 14.2% share of US TV time this July,” Khallouf wrote, adding “This momentum is increasingly coming at the direct expense of Netflix as its share fell to a multiyear low of 7.8%.”

Even worse for Netflix, its archrival landed a one-two engagement punch just a day after the HSBC downgrade:

• On Wednesday of last week, Coachella’s festival promoter Goldenvoice announced the renewal of its live streaming contract with YouTube, which trumped offers from Netflix and Amazon.
• The same day, YouTube unveiled a suite of new production tools intended to keep creators exclusively on its platform. YouTube and Netflix have fought fiercely over internet creators, and YouTube has begun telling its top stars that airing content on Netflix could cost them lucrative brand deals, The Wall Street Journal reported last week.

Go Long: Netflix is hustling to stay in the picture. Last week, the company struck a global content deal with ChuChu TV, which produces international content for preschool-aged children and has racked up more than 180 million subscribers on its YouTube channel. Meanwhile, Netflix’s recent broadcast of the Melbourne, Australia-based 49ers-Rams game during Week 1 of the NFL season drew 18.5 million viewers in the US and 3.2 million viewers internationally. Last year, YouTube’s broadcast of a Brazil-based game drew about the same number of viewers domestically, but just 1.2 million outside of the US. It’s not a touchdown, but it’s crucial yardage.