Netflix is losing customers for the first time in ten years. Now the company wants to break a taboo. Five questions about the situation
How bad is Netflix?
The streaming platform presented its latest business figures last week. And, as Netflix CEO Reed Hastings conceded, they were disappointing. Although the company’s revenue grew slightly in the first quarter of 2022, the number of subscribers – the most important success parameter – shrank by a total of 200,000. It is now at 222 million worldwide. The decline was particularly sharp in Netflix’s flagship markets, the US and Europe. Because the platform withdrew from Russia because of the war in Ukraine, it lost 700,000 subscribers there overnight. Netflix only gained subscribers in Asia .
Development of Netflix shares
The poor business figures are also noticeable on the stock exchange. In October 2021, Netflix shares were worth just under $700. Today it is a little over $200. Netflix is the big exception among tech companies. Companies like Apple and Amazon have benefited from the pandemic and are rushing from one stock market record to the next.
And it doesn’t look like Netflix is having a slump. On the contrary, the downtrend could even intensify soon. The company expects to lose up to two million subscribers in the second quarter of the year.
What are the reasons for the crash?
Several developments are to blame for the crisis. On the one hand, there is the foreseeable end of the pandemic. In the past two years, people all over the world have been spending a lot of time at home in front of the screen. The pandemic allowed little else than lying on the sofa in the evening and streaming films and series. The number of Netflix customers grew correspondingly strongly during this time. Now people can spend their free time differently again, the boom caused by the pandemic is over.
But the most important reason for Netflix’s problems is another: the fierce competition in the streaming market. Entertainment companies like Disney, tech giants like Apple and Amazon , but also television stations like HBO have now started their own streaming services. They all compete with Netflix for subscribers. In the USA, where there is a lot of competition, there is therefore somewhat martial talk of a “streaming war”. Its end is not in sight. New suppliers are still entering the market.
How are Netflix’s competitors faring?
Different. Things are going pretty well at Disney, for example. Disney+, the group’s streaming service launched just two years ago , already has 123 million subscribers. It took Netflix more than a decade to reach that mark.
Apple TV+, which, like Amazon Prime Video, does not make its subscriber numbers public, has recently had success: the platform has landed hits with in-house productions such as The Morning Show or Ted Lasso . The streaming offers from Apple and Amazon have a decisive advantage over Netflix: They belong to large corporations and therefore do not necessarily have to be self-financing.
CNN , on the other hand, experienced quite a flop . The US news channel only launched its streaming service CNN+ at the end of March. The broadcaster has now announced that it will discontinue the platform on April 30th, after just one month. The reason: The CNN parent company Warner Media merged with the media group Discovery in April and prefers to bundle all streaming offers in the future.
How is Netflix responding to the competition?
In order to assert itself on the market, Netflix wants to position itself more broadly in the future. The company announced last year that it wanted to enter the gaming market and also offer video games on the platform. The attempt to reach the important target group of 14 to 25 year olds is probably behind this. According to a study by the consulting firm Deloitte, people of this age now spend more time with the game console than streaming films and series.
But it should not stop with new business areas: In the future, the streaming service wants to pay more attention to the fact that its customers really pay for the platform. Netflix has long had a problem with users sharing subscriptions with friends or family members who don’t live in the same house. The group estimates that around 100 million households worldwide stream without paying for it.
And the Netflix boss Hastings has another answer ready: He wants to show advertising in the series and films .
Can advertising on the platform be the solution?
For years, advertising was a taboo at Netflix: Just don’t interrupt series and films with annoying commercials – the idea was once competed against the cable providers. Now, however, the Netflix boss is open to the idea of introducing a cheaper subscription that includes advertising clips. An offer for “customers who don’t mind the advertising” makes sense, he said last week. In the next one to two years one wants to work on such a version.
Background of the idea: The Netflix subscription became more and more expensive over time. While the standard version cost EUR 8.99 a month in 2014, customers now pay EUR 12.99. With a cheaper subscription one hopes for growth again. Disney has also just announced that it will be offering a cheaper Plus subscription from the end of 2022, which is financed by advertising clips. And the Amazon group, which has been operating a free, advertising-financed streaming service called Freevee (formerly IMDb TV) in the USA since 2019, also wants to come to Germany with the platform this year.