At least that’s according to analysts at Liberum, who in a note of Thursday said that in order for the streaming giant to replace content pulled from its platform as rivals such as Walt Disney Co (NYSE:DIS) and Comcast Corp (NASDAQ:CMCSA) for their own services, it may need to acquire content providers to fill the gap.
“Netflix’s main strategic issue is that it has been reliant on other parties to provide the bulk of its content”, Liberum said, adding that if the library continued to shrink as more existing providers joined the exodus, there would be little left for customers to sign up for.
Netflix is already seeing the growth its subscriber base beginning to slow, with only 2.7mln joining in its second-quarter compared to Wall Street estimates of 5.3mln.
Meanwhile, the company also reported a 130,000 reduction in its number of US subscribers to 60.1mln, which was mostly attributed to higher prices as Netflix seeks to support a growing content budget, which jumped 35% this year to US$12.04bn.
By contrast, Disney-owned streaming rival Hulu has been cutting prices in the US market, which Liberum said placed it at a “clear advantage”.
The bleak numbers caused investors to quickly switch off from the firm, with the shares tumbling around 11% to US$321 in early trading in the US on Thursday following a plunge in after-hours trading on Wednesday.
In order to reduce its reliance on other content providers and compete with the content libraries of its soon-to-be rivals, Liberum said one route would be for Netflix to buy content creators, with ITV standing out as an “obvious option” due to its substantial production arm, ITV Studios, and the UK’s reputation as a producer of high-quality media.
ITV is currently in the middle of a strategy to increase its content output to reduce its reliance on advertising revenue, a move which may serve to make it even more attractive to potential buyers.
The company is also currently working with the BBC for a UK launch of BritBox, a subscription streaming service which includes content from the archives of each, which depending on the arrangement could provide it with access to even more content.
In late-afternoon trading in London on Thursday, ITV shares were 1.3% higher at 109.2p.