Netflix is ​​struggling to keep its place in the streaming wars

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When live video documentary series about the streaming wars, it’s easy to imagine Netflix’s disappointing earnings this week as a major cliffhanger to end the series: The company said on Tuesday that it was losing customers for the first time in a decade, that it plans to lose even more during 2022 – and the company’s future is at stake.

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Netflix lost 200,000 more paying customers than it did in the first three months of the year and predicts it will lose another 2 million customers in the second quarter. “Relatively high household penetration — given the large number of households sharing accounts — coupled with competition poses a barrier to revenue growth,” the company said in a statement. wrote in a letter to shareholders. The loss of 700,000 customers over the past three months in Russia as a result of sanctions was exacerbated by the unforeseen loss of 600,000 customers in the US and Canada and another 300,000 customers in Europe, the Middle East and Africa. Successes in Asia-Pacific helped soften the blow, but still resulted in a net loss of users.

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The results were much worse than expected for Netflix, whose share price fell 25% after hours on Tuesday and fell another 35% after trading opened on Wednesday. “It’s now clear that Netflix’s quarterly results are going to be bumpy from now on,” said Tony Gunnarsson, chief online video analyst at Omdia.

It’s not just the quarterly reports that are disappointing for Netflix. Two days before the company reported disappointing first-quarter earnings, industry analysts at Kantar published a report which examined the state of streaming services in the United Kingdom. The firm found that 1.5 million households have canceled their subscription to the streaming service in the past three months, and 38 percent of those cancellations were in an attempt to cut costs. “The evidence from these results shows that UK households are now actively looking for ways to save money and SVOD [subscription video on demand] the market is already seeing the consequences of this,” Dominic Sunnebo, director of global analysis, Kantar Worldpanel, said in a statement. This came after the recent price increase on Netflix. second in 18 months for UK consumers facing en unusual frank backlash on the social mass media.

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News that subscribers are looking to cut rather than expand their video streaming subscriptions, which appear just a few months after a separate Nielsen study found that nearly half of consumers report feeling overwhelmed by the number of streaming services available, which could be a concern for the sector as a whole. As new players like HBO Max, Disney+, Paramount+, Apple TV+ and more jump into the fray, viewers will have to choose which services are most important. It is not known who will survive. “The spotlight is on Netflix, this big company with the biggest streaming service that is now facing a wave of competition that, although they were ready for it, hits them all at once and eats up their market share,” he says. Julia Alexander, Senior Strategist at Parrot Analytics.

Alexander believes Netflix has both the funds and cash reserves to compete and survive, but it won’t compete solely on its past catalog. Disney, Paramount and HBO Max (which is part of newly merged Warner Bros. Discovery) everyone has plenty of TV shows and movies to immerse themselves in; Amazon’s recent purchase of MGM gives it a huge amount of content. In comparison, the list of original Netflix shows and movies seems lackluster.

However, instead of filling out its catalog, Netflix is ​​trying to go beyond video. Like, for example, strengthening the state of the game service it launched November 2021. “They are going to invest in branching into different types of content to be as much of a four-quadrant service as possible,” Alexander says, meaning that they are targeting not only men, but also women, and not just those who are less 25 years. but also those who are over 25 too. “But at the same time, they realize that the competition is stronger now than ever. They need to find a way to be Netflix again and figure out how to revolutionize some parts of the industry.”

But it costs money – which is why in many parts of the world there are fees to increase prices. “From an analyst perspective, SVOD is still worth the money, even with the price going up,” says Gunnarsson. “You can watch as much content as you like for two pints in a pub and have unlimited access to all of that content.” British households use two services on average, half as many as in the US, according to Omdia. For now, Netflix, like Amazon, is seen as a tethering service that users use all the time, switching to other, smaller, competing services when they can afford it. Netflix in default live streaming service,” says Andrew A. Rosen, founder of live streaming analysis consultancy Parqor. But this can always change.

Alexander estimates that there are 75 million US households subscribed to Netflix. “What you’re really trying to do at this point is re-engage customers who may have left to sign up for Paramount+ for a month or whatever,” she says. Original content on Netflix, while some may find it underwhelming, broadly falls into two categories: reality shows and kids entertainment that keep existing subscribers happy, and big action, drama and sci-fi shows that re-engage subscribers. abandoned their business. in the other place. But dropouts are relatively rare for Netflix, Rosen says: “Their market churn in the US is about 2.2 percent,” he says. “Church is low.”

And while there is still plenty of room for growth in other markets, these users tend to make less money per customer for Netflix and other streaming services than in the US, UK, or other countries. According to Alexander, the average revenue per Disney+ Hotstar customer in India, Brazil, or Mexico is about $1.06, compared to $6.13 in the US. “It’s a huge difference when you look at tens of millions of subscribers,” she says. And to get extra money from the market when subscriber growth slows to a trough, as it does in the US and UK, you have to start raising prices.

However, the problem remains that raising prices during a period of macroeconomic uncertainty is a risky business. Rising gas prices, rising home heating costs, and declining living standards caused by runaway inflation all affect discretionary spending, which definitely includes video streaming providers. But there is another way to make money by retaining and growing customers: ad-supported tiered services. June 2021 HBO Max launched a stripped down, ad-supported version of its streaming service at a $5 discount compared to the full $14.99/month product. Disney+ launches promotional level later this year, joining Peacock, Paramount+ and Discovery+. “Logically, common sense dictates that competition will require more streaming services to transition to hybrid AVOD. [advertising-based video on demand]/SVOD,” says Gunnarsson.

Indeed, this, in his opinion, is behind the disappointing results of Netflix. “What they didn’t explicitly say, but what could be part of the main driver for the expected further decline in the second quarter, is that there could be a shift in domestic trends in the US from pure paid SVOD to AVOD or hybrid. AVOD/SVOD services,” says Gunnarsson. “In other words, American homes are starting to wonder why they should pay for SVOD when you can access some services through AVOD, or at least a hybrid AVOD/SVOD. This explains why Netflix first stated that it will now consider adding a cheaper, ad-supported tier in the near future.”

If not a disastrous reckoning moment, Netflix is ​​at a crossroads where it needs to figure out how to sustain growth to justify its ongoing spending. Is he cutting staggering amounts on Netflix originals to justify slowing subscriber growth? Is he trying to keep up with production by rethinking his business model and introducing advertising? Or is he doubling down on price increases for customers to try and squeeze more money out of viewers? “Here’s the question: Can Netflix define the next wave?” Alexander says. “In my experience, I don’t bet against Netflix.”

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