Streaming services, which revolutionized the way people consume entertainment, now face many challenges when it comes to increasing – or even maintaining – their subscriber base.
On Tuesday, Netflix’s first-quarter earnings showed the streaming service lost 200,000 subscribers – its first drop since 2011. The results shook investors and Netflix’s shares fell 37% by Thursday morning.
The market had expected poor performance in the last quarter, but the decline came as a “complete shock”, said Gita Ranganathan, a senior analyst at Bloomberg Intelligence.
“This raises questions about the final game for Netflix, of course, and for all streamers,” she said.
Ranganathan pointed to a number of factors that are affecting Netflix’s problems, including the effects of the pandemic, inflation and the war in Ukraine. The company lost 700,000 subscribers after shutting down its services in Russia last month.
However, Netflix’s dominance in the streaming industry has been threatened for some time, with the rise of other streaming platforms, including Amazon Prime Video, Disney Plus and HBO Max or Crave in Canada.
“Netflix has simply belittled him in the past,” Ranganathan said.
Other streamers are likely to face similar challenges
In a conference call with investors on Wednesday, Netflix CEO Reid Hastings acknowledged the success of the platform’s competitors and the impact they have on Netflix’s performance.
“We have great competition. They have very good shows and movies. And what we need to do is raise it,” he said.
AT&T’s first-quarter earnings, released on Thursday, show that HBO and HBO Max have added three million subscribers so far in 2022, reaching nearly 77 million subscribers worldwide.
WATCH Netflix is exploring ads that suppress password sharing as subscribers drop:
Netflix investigates ads, suppresses password sharing when subscribers drop out
Streaming giant Netflix is considering cheaper subscriptions with ads and cracking against password sharing between households after registering a sharp drop in subscribers. 1:56
While Netflix grabs the headline for losing subscribers, this bad news is partly a feature of the streaming giant, which is the industry leader with about 222 million subscribers worldwide.
“You have all the other streamers still trying to catch up with Netflix,” Ranganathan said. “Down the road they will probably face the same problems.”
Investors’ expectations that Netflix would grow quarter after quarter were unrealistic, said John Gigengack, founder of Entertainment Hub Research, a US-based consumer research company.
“The slowdown or stagnation of their growth is something that I thought was inevitable because they had the market to themselves for so long, and now, after a long time, they are starting to face some really significant competitors,” he said.
Increasing the cost of living causes people to reduce costs
Meanwhile, as inflation reaches a 31-year high in Canada (and a 40-year high south of the border), many need to consider where they can start cutting budgets.
For Christine MacDonald-Sterat of London, Ont., One of those areas is streaming subscriptions. The 27-year-old says she recently canceled her Crave account because she didn’t feel she was getting the money with the available content.
“For a while, it was like, ‘Oh, whatever. I don’t care,'” McDonald-Sterat said. “But now that groceries are rising and gasoline is rising and rents are astronomical, it’s like, OK, I have to cancel because it matters now.”
According to a survey conducted earlier this year by Angus Reed in partnership with CBC News, 53% of Canadians reduce their discretionary costs. The survey was conducted between February 11 and 13 with 1,622 Canadians and has a margin of error of plus or minus 2.5 percent, 19 times out of 20.
Inflation plays a role in Netflix’s challenges when it comes to retaining subscribers, Rangantan said. “There are so many that consumers can afford to pay for all these different streaming services.”
LISTEN | How inflation is likely to affect your budget:
Ottawa Morning8: 34What can record inflation in Canada mean for your budget
Rising inflation in Canada continues to exceed record levels. More about the impact here in Ottawa – from a financial advisor. 8:34
Streaming services are actually struggling with higher outflow rates from cable providers, Gigengack said, because they do not require contracts to register.
A recent report published by Deloitte on digital media trends found that Generation Z and millennial users are particularly likely to cancel subscriptions to video streaming services.
“Streaming platforms are already aware of the importance of engaging people once they register,” Gigengack said.
Finding other revenue streams
As Netflix reaches the ceiling with its customer base, the streaming giant is looking for other ways to generate revenue.
It is now considering multi-level subscriptions that would provide a cheaper alternative to current plans, with integrated advertising in the viewing experience.
“Those who have followed Netflix know that I was against the complexity of advertising and I am a big fan of the simplicity of the subscription,” Hastings said in a conference call on Wednesday. “But as much as I’m a fan of this, I’m a big fan of consumer choice.”
Netflix will not be the only streaming service to include advertising in its content. Disney Plus announced last month its intention to introduce a subscription level with advertising in the United States
Offering both options could help the company reach a larger customer base, Gigengack said. His company found that more than half of people were willing to watch commercials if it meant saving $ 4 or $ 5.
“Not all consumers are tolerant of advertising, but surprisingly many do,” he said.
Netflix also hopes to help share passwords, estimating in a letter to shareholders that about 100 million households currently share their passwords with other households. Last month, the company launched a pilot project in Chile, Peru and Costa Rica, where customers can pay a fee to share their password.
“We’ve always tried to make sharing a member’s household easy, with features like profiles and multiple streams. Although they were very popular, they were confusing about when and how Netflix could be shared with other households, the letter said. Read.
The future of streaming
Based on current trends, Netflix further estimates that it will lose an additional two million subscribers in the second quarter of this year, leading to some concerns about the future of the streamer.
While Netflix is a “pioneer” in terms of its content, Ranganathan said the results of its profits raise questions about whether that content resonates, despite the billions pouring into it.
“They really need to look at their model and see how to create more content without spending so much – but really create content that keeps viewers engaged,” Ranganathan said.
Despite these recent results, Gigengack says he doesn’t believe the future is bleak for streaming, especially since people today are more likely to have multiple subscriptions than a few years ago.
Launched in late 2019, Disney Plus has quickly become a leading streaming service and today has nearly 130 million subscribers. (Robin Beck / AFP via Getty Images)
One of the ways Giegengack says the industry can change is by merging services, where streamers with additional content or services will start offering bundled subscriptions to consumers.
“Consumers are increasingly seeing value in aggregators who combine these things for them,” he said.
This type of packaging has already begun to happen, with telecommunications companies such as Rogers offering Disney Plus with their television services.
And while streamers may need to find new ways to make money and improve user retention, both Ranganathan and Giegengack agree that Netflix’s challenges today by no means mean the end of streaming.
“I don’t think this is the end of Netflix or the end of streaming,” Ranganathan said. “It’s definitely a recalibration of expectations.”
Add Comment