Netflix’s results in the first quarter sent investors one clear message: the pandemic streaming boom is over.

“We had those 10 years where we’re growing smooth as silk, and [it’s] just a little bit wobbly right now,” founder Reed Hastings told analysts after the company reported sharply slower sign-ups in the first three months of the year. Worse yet, Netflix warned that in the US, its largest market, subscribers would be “roughly flat” through the first half of 2021.

Part of this is explained by the unique circumstances of the pandemic, with homebound viewers giving Netflix its best year ever in 2020, sealing its lead over fierce competition from Disney, Amazon, Apple and other large companies vying for a slice of the streaming economy.

Worldwide, the market for subscription streaming services is still growing; there are now more than half a billion subscribers for Amazon, Netflix and Disney alone. The proliferation of rival services has led some observers to question their long-term strength.

In more mature markets such as the US, Netflix is facing more fierce competition for time and money, whether it is going out, or other viewing options such as YouTube and free, ad-funded streamers such as NBC’s Peacock.

According to TVision, the US-based audience measurement company, time spent watching TV has steadily increased since October overall, having declined from its peak in April. Yet Netflix’s share of viewing has fallen. It found that the streaming service’s share has declined 5 percentage points to 23 per cent in the past two quarters while smaller rivals have made minor gains. However, it remains comfortably number one.

Chart showing time spent watching Netflix has fallen

While this pandemic impact has distorted growth at Netflix and other streaming services, a more concerning conundrum also appeared in the company’s quarterly results. Netflix executives said a weaker content slate, with some programming delayed due to Covid delays, had translated to fewer subscribers.

“A lot of the projects we had hoped to come out earlier did get pushed because of the production delays,” said Ted Sarandos, co-chief executive, who promised investors the company would get back to a “steadier state” in the second half of the year with the return of hits such as The Witcher.

Netflix now boasts 208m paying customers, and has transitioned from the disrupter to the incumbent in a new entertainment business defined by streaming. Its valuation has soared to $225bn.

But even at such scale, recent earnings results suggest that Netflix must keep spending big on programming to juice its subscriber count, raising fundamental questions about whether streaming is a good business, with profit margins that will steadily improve as the pioneers of subscription streaming ease off on investment and raise prices.

“Even for Netflix, it turns out that fresh, new original content is a critical factor in driving . . . subscriber additions,” said Michael Nathanson, a senior media analyst at MoffettNathanson.

“That simple observation goes to the heart of our debate on streaming and whether or not current valuations are consistent with the long-term dynamics of the business model,” he added.

Media groups are splashing out tens of billions a year on television shows and movies as they fight for a share of the streaming market. Netflix said it was on track to spend more than $17bn on content this year, while Amazon, Disney and Warner Media, the owner of HBO Max, are ratcheting up investment in original shows to supplement their archives.

Chart showing that Netflix leads the way in content spend

Not all spending translates into popularity or success, though. Hits, whether expensive or cheap to make, are the big underlying force driving the subscription streaming economy. And as Hollywood knows, they are extremely difficult to predict.

Here the approaches taken by the different streaming services are markedly different. HBO has one of the smallest libraries in the streaming battle — Amazon’s catalogue of mainly licensed movies and programmes is 13 times larger.

However HBO excels in churning out critically acclaimed shows, as measured by a weighted rating of review websites calculated by Ampere Analysis. Netflix and Amazon’s libraries offer more quantity over consistent quality.

Chart showing number of films and TV shows by streamer platform and their critical rating

“We believe the core product proposition of Netflix is ‘something new and different every day’, as opposed to ‘specific hit show XYZ,’” said Todd Juenger, analyst at Bernstein. But he added that subscriber growth could undoubtedly be “hit boosted”. “The more one believes that to be true, the more optimistic one would likely be about [the second half of 2021],” he said.

Additional reporting by Chris Campbell and Patrick Mathurin