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Tracee Hsiang

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Aug 2, 2024, 6:08:48 AM8/2/24

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The reaction on Wall Street marks the latest indication of a profound shift in investor priorities away from subscriber growth and toward the bottom line, which holds implications for striking writers and actors as well as the shows and movies that end up on screen, experts told ABC News.

A password-sharing crackdown helped the streaming platform add 5.9 million subscribers over the three months ending June, which marked a staggering improvement from the same period a year ago when the company lost nearly 1 million subscribers, Netflix said.

In all, Netflix said it boasts about 232 million subscribers, far outpacing its nearest rival Disney+, which reported just shy of 158 million subscribers in May. (The Walt Disney Company is the parent company of ABC News).

Meanwhile, Netflix's free cash flow -- a measure of how much money is available to a company after it pays for operating expenses -- grew by $1.5 billion to a total of about $5 billion, the company said.

Despite the recent losses, Netflix stock has climbed roughly 44% this year -- a sign that the investor reaction this week suggests a judgment about an overvalued stock rather than an unhealthy company, Luis Cabral, a professor of economics and international business at New York University who focuses on the entertainment sector, told ABC News.

Still, the stock falloff is the latest sign of an industry-wide shift away from the breakneck subscriber growth that marked an early phase in the sector as companies jockeyed to accrue a large customer base that could shoulder out competitors, he said. Now, he added, companies like Netflix need to show that they're actually making money and delivering profits.

That means the companies are less likely to bankroll expensive shows or movies, she added. Some firms, including Netflix, have even imposed layoffs going back to last year as a means of cutting costs.

Viewers should expect a smaller selection of shows even after the calendar returns to normal following the strikes, she added. \"There was this rush to drive content over the last three to five years,\" she said. \"Everybody is going to pull back.\"