Netflix faces a difficult battle to retain its crown after a long reign as the king of streaming. Between April and July, it lost over 1 million members as the number of people leaving the service increased.

However, it was not as many as the streaming giant had anticipated.

When asked what would have prevented subscriptions from falling more, the company’s CEO, Reed Hastings, remarked, “If there was a single thing, we might suggest ‘Stranger Things.'” The new season of the hit drama has been a huge success, and it may have slowed the outflow of Netflix subscribers.

In April, the company revealed its first subscriber loss since 2011, prompting hundreds of job losses and a dramatic plunge in its stock price.

Rivals are challenging its dominance, and price increases have taken their toll.

The subscriber losses disclosed on Tuesday were the largest in the company’s history, with the United States and Canada having the most cancellations in the quarter, followed by Europe.

Guy Bisson, executive director at Ampere Analysis, predicted that Netflix’s market dominance will begin to wane.

“When you’re the leader, there’s only one direction to go, especially when a large amount of competition launches, which is what Netflix has seen in the last couple of years,” he said.

It marks a significant shift for Netflix, which has experienced years of apparently unstoppable expansion as it transformed the way people across the world consume content.

When the epidemic arrived in 2020 and people were stranded at home with few other options for entertainment, they flocked to big hits like Squid Game and The Crown.

However, as pre-pandemic habits resurface, Netflix has struggled to attract new sign-ups – and retain the allegiance of existing members – particularly as the cost of living issue forces people to tighten their belts.

Apple TV, HBO Max, Amazon Prime, and Disney+ are also tough competitors for the corporation.

Netflix was once the disruptor, rendering video rental stores such as Blockbuster obsolete. However, the disruptor is quickly becoming the disrupted.

Some users have been turned off by Netflix’s decision to raise the price of its service.

In the United States, a “regular” subscription, which allows members in the same household to watch on two devices at the same time, now costs $15.49, up from $14 in January and under $11 in 2019.

In the United Kingdom, basic and standard plans have both increased by £1 per month since January, to £6.99 and £10.99, respectively.

“At some point, yes, they’re going to reach a threshold where a significant number of people say enough is enough,” Mr Bisson said. “Because of the additional choice… price hikes are a more risky strategy.”

For the time being, surveys indicate that Netflix is able to entice more deserters than its competitors. Many households continue to identify it as the streaming choice they would choose if they could only have one.

At the end of June, the corporation had around 220 million customers, placing it significantly ahead of its nearest competitor.

However, the corporation, which has long been accustomed to double-digit growth, is seeing its most significant downturn in years, with revenue of $7.9 billion in the April-June quarter, up only 8.6 per cent year on year.

As investors lose faith in the company’s prospects, the stock price has plunged more than 60 per cent this year.

“Netflix’s subscriber loss was expected but it remains a sore point for a company that is wholly dependent on subscription revenue from consumers,” said Insider Intelligence analyst Ross Benes.

“Netflix is still the leader in video streaming but unless it finds more franchises that resonate widely, it will eventually struggle to stay ahead of competitors that are after its crown.”

After-hours trading saw shares rise more than 7% on relief that the losses were not worse. The company has warned that it could lose up to two million subscribers.

Netflix has announced a new ad-supported service and a crackdown on password sharing, which one research said cost Netflix $6 billion each year.

It is already charging more for sharing accounts in various Central and South American countries. It intends to replicate this concept throughout the world.

However, the corporation has been aware of concerns with password sharing for years and has yet to develop a solution.

The company stated in its shareholder update that it is “encouraged by our early learnings and ability to convert consumers to paid sharing across Latin America.”

It stated that the less expensive, ad-supported option would be available in early 2023, beginning in “a number of markets where advertising spend is strong.”

“Like most of our new initiatives, our intention is to roll it out, listen and learn, and iterate quickly to improve the offering,” the company said.

According to Bisson, the ad service has the potential to attract both existing customers who are hesitant to cancel due to price increases and prospective households who are unwilling to commit to a subscription.

Netflix should be able to make the same – or more – money per user as it did when it relied on subscriptions, he noted.

“Assuming they get it right – and by getting it right I mean the price … and the amount of advertising on it – then it’s potentially a strong strategic move for them,” he said.

However, he stated that Netflix’s most important responsibility is to ensure that it has compelling content for people to watch, a mission that has become more difficult as the company strives to reach a wider audience.

In the United States, for example, new sign-ups are coming from an increasingly older demographic with different tastes than the younger viewers who were early streaming converts.

“They’re increasingly competing for that generalist audience, so the breadth of content that is needed becomes much wider and that’s why I think people are saying ‘there’s now a lot of stuff I don’t like’,” Mr Bisson said. “It’s a very big challenge.”

Netflix requires “more frequent hits,” according to Eric Steinberg of Whip Media, who also believes Netflix has room to experiment with staggered releases in order to retain its subscribers.

The firm has already taken steps in that way by releasing episodes of Stranger Things’ fourth season in two instalments this year, but the “pressure is on,” he said.

“They don’t have the sandpit to themselves anymore,” he said. “In an inflationary environment like the one we’re in and also great programming [at the competition], people are going to re-evaluate how much they’re willing to pay.”

(Adapted from BBC.com)

Categories: Economy & Finance, Strategy, Sustainability, Uncategorized