New Delhi: When the pandemic hit in 2020, Netflix hit 16 million new subscribers in the first quarter of the year. But now, for the first time in a decade, the streaming platform has lost subscribers – 200,000 of them in the first quarter of 2022, according to its letter to shareholders published on Tuesday.
Things could well get worse. The company predicted it could lose 2 million subscribers in the second quarter. Unsurprisingly, shares of Netflix have fallen since Tuesday, dropping 39% on Wednesday.
The company’s letter attributes much of the blame for its lackluster performance to a large number of households sharing accounts, fierce competition with other streaming platforms, as well as global factors such as the Russian war. -Ukrainian and inflation.
But, how exactly did things go south, especially after the lockdown boom when almost everyone seemed to be on the ‘Netflix-and-chill’ train? And what does the company plan to do to retain and grow its subscribers?
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“Covid has clouded the picture”
In its letter to shareholders, Netflix explained how its revenue growth “has slowed significantly” despite the global popularity of several of its titles. The issues had been simmering for some time, the letter suggested, but weren’t immediately apparent because they were masked by the massive growth of 2020.
“Covid clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our growth slowdown in 2021 was due to the Covid push,” the letter said.
According to Netflix, four major “interrelated factors” have led to its current situation.
Among these was one of the features that makes Netflix so popular: the ability to share passwords/accounts. This, the company said, has made it more difficult “to grow membership in many markets – an issue that has been obscured by our Covid growth.”
The company also acknowledged that the rate of growth in its “underlying addressable market” – homes with broadband connections – was also affected by external factors such as “adoption of connected TVs…adoption of entertainment on-demand and data costs”.
The third factor was the changing face of competition. The letter explained that Netflix had experienced “robust” competition from “linear TV”, YouTube, Amazon and Hulu over the past 15 years, but over the past three years many new streaming services had been launched, including understood by traditional entertainment companies (like Disney).
Finally, Netflix highlighted the likely impact of “macro factors” including “slow economic growth, rising inflation, geopolitical events such as Russia’s invasion of Ukraine, and some ongoing Covid disruptions.”
How does Netflix plan to relaunch?
Netflix said it plans to accelerate revenue growth by improving its services and “more effectively monetizing multi-household sharing”.
The latter likely means the company is looking to impose restrictions on its popular password-sharing feature.
Netflix hasn’t explained exactly how it will achieve this, but there’s a hint in the company’s announcement last month that it’s launching and testing a new feature in Chile, Peru and Costa Rica that lets licensees main accounts to pay for adding external users. their household.
Also in the shareholder letter, the company mentions this and the possibility of other unspecified ways to “monetize sharing,” adding that average revenue per member (ARM) growth and viewing “will become more important indicators of our success than membership growth”. .
The company is also looking at the content of its programming. In his Q1 2022 earnings interview video, in which the brass can be seen weighing in on Netflix’s troubles, co-CEO and chief content officer Ted Sarandos admits, “We weren’t happy with the growth premium subscribers… We need to have a Bridgerton And one Project Adam each month…”
Sarandos pointed out that the platform gained a lot from “unscripted content”, or reality TV shows, which turned into “original unscripted universes”.
International content was also mentioned in the earnings call, particularly the potential of markets like Korea. The CEO also mentioned “a nice rise in India” and high hopes for the titles to come.
Also in the letter, Netflix mentions that it is still experiencing “great growth” in the Asia-Pacific region, including India, Japan, the Philippines and Thailand.
“Low-end” plans with ads could be on the horizon
One of the biggest questions for Netflix management is whether they should also replicate the advertising models of some of their competitors. The idea is to charge users less money for a subscription plan that includes ads.
Netflix co-CEO Wilmot Reed Hastings on the earnings call said “one way to increase the price gap is through advertising on low-end plans.”
“We could offer subscriptions at even lower prices with ads,” Hastings said, noting that might appeal to those who are “ad-tolerant.”
“It’s not a short-term solution,” he said, “because once you start offering a cheaper plan with optional ads, some consumers accept it.”
(Editing by Asavari Singh)
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