After a protracted reign as the king of streaming, Netflix will have to battle hard to maintain that position.
Between April and July, it lost approximately 1 million members as the rate of service cancellations increased.
But it was less than the streaming juggernaut had anticipated.
When asked what may have prevented more subscriber declines, the company’s CEO, Reed Hastings, responded, “If there was a single item, we might suggest ‘Stranger Things’.”
The wildly successful new season of the popular show may have stopped Netflix subscribers from leaving.
In April, the firm announced its first decline in subscribers since 2011. This news was immediately followed by hundreds of job losses and a dramatic decline in the value of its stock.
While price increases have had a negative impact, rivals are challenging its hegemony.
The company disclosed its largest-ever subscriber losses on Tuesday, with the US and Canada having the most cancellations in the quarter, followed by Europe.
It was “inevitable,” according to Guy Bisson, executive director of Ampere Analysis, that Netflix’s hold on the market would begin to wane.
“There’s only one path to go when you’re the leader,” he added. “Especially when a lot of competition launches, which is what Netflix has seen in the last couple of years.”
It is a significant shift for Netflix, which has experienced years of apparently unstoppable expansion and revolutionized the way people consume entertainment globally.
When the epidemic struck in 2020 and people were stranded at home with few other alternatives for entertainment, they rushed to blockbuster successes like Squid Game and The Crown, solidifying its status as a worldwide powerhouse.
However, when pre-pandemic habits resume, Netflix has found it difficult to retain the allegiance of current subscribers and draw in new ones, particularly as the cost of living issue forces people to cut their budgets.
Intense rivalry exists between the business with services like Apple TV, HBO Max, Amazon Prime, and Disney+. When Netflix first emerged, Blockbuster and other video rental businesses were rendered obsolete. However, the disruptor is quickly turning into the disrupted.
Some users have also been turned off by Netflix’s decision to raise the cost of its subscription.
A “regular” subscription in the US now costs $15.49, up from $14 in January and just $11 in 2019. This package lets users in the same home to watch on two devices at once.
The basic and standard plans in the UK have each increased by £1 per month since January, to £6.99 and £10.99, respectively.
Yes, they will eventually cross a barrier where a sizable enough number of people will declare enough is enough, according to Mr. Bisson. Price increases are a riskier tactic since there are more options available.
According to current studies, Netflix appears to be more successful than its competitors in bringing back deserters. It’s still the streaming choice that many families say they’d stick with if they could only choose one.
At the end of June, the business had almost 220 million members overall, still much more than its nearest rival.
With sales in the April–June quarter of $7.9 billion, up just 8.6% year–over–year, the corporation, which has long been used to seeing double digit growth, is currently experiencing its most dramatic downturn in years.
As investors grow pessimistic about the company’s future, the share price has fallen more than 60% so far this year.
According to Insider Intelligence analyst Ross Benes, “Netflix’s subscriber loss was predicted, but it remains a sore point for a corporation that is totally dependent on subscription revenue from customers.”
Netflix is still the market leader in video streaming, but unless it discovers more popular properties, it may soon find it difficult to stave off challengers that are vying for its dominance.
In after-hours trading, shares increased by more than 7% on relief that the losses were not greater. The company has issued a warning that it may lose up to two million members.
Netflix claims that it will accelerate growth by launching a new service that will be monetized by advertisements and by cracking down on password sharing, which according to one research costs Netflix $6 billion annually.
For sharing accounts, there are already higher fees in various Central and South American nations. It intends to use this approach as a template all over the world.
Although the business has been aware of the issues with password sharing for years, a fix has not yet been found.
The firm expressed its “encouragement by our early learnings and ability to convert customers to paid sharing in Latin America” in its shareholder update.
It stated that it anticipated the introduction of its less priced, ad-supported version to occur in the first few areas with “substantial advertising investment” in early 2023.
According to the corporation, “like most of our new projects, our objective is to roll it out, listen and learn, and swiftly iterate to improve the service.”
According to Mr. Bisson, the ad service has the potential to draw both current users who may cancel due to price increases and new families who might be hesitant to sign up for a subscription.
According to him, Netflix should be able to generate the same amount of revenue per user—or maybe more—than it did when it solely relied on subscriptions.
It may be a good strategic move for them, he added, “if they get it right, and by getting it right I mean the pricing… and the amount of advertising on it.”
However, he claimed that Netflix’s most important responsibility is to make sure that there is quality content available for viewers, a mission that has become more difficult as the company tries to appeal to a wider audience.
In the US, for instance, more and more new subscribers are getting older audiences, who have different interests from the younger viewers who were early adopters of streaming.
The range of information required expands as they compete for the general public, which is why, in Mr. Bisson’s opinion, people are saying, “There’s now a lot of stuff I don’t like.” It’s a really difficult challenge.
According to Eric Steinberg of Whip Media, Netflix needs “more frequent hits,” but it also has leeway to experiment with staggered releases in order to hang on to its members.
The fourth season of Stranger Things was released in two batches this year, and the corporation has already moved in that manner, but the “pressure is on,” he added.
They no longer have the sandpit to themselves, he observed. “People are going to re-evaluate how much they’re prepared to spend in an inflationary climate like the one we’re in and also fantastic programming [at the competitor],” the author said.