For many years, Netflix has enjoyed its singular status as king of the streaming networks. The platform seemed untouchable—which is why recent news regarding its struggles took both fans and investors by surprise. Late April reports revealed a loss of 200,000 subscribers during the first quarter of 2022, with two million more expected to depart by end of year. In response, shares tumbled 35 percent and its value dropped by over $50 billion in a single day. But Netflix still counts over 220 million subscribers around the world, more than any other streaming network. Here’s a look at some lessons learned along the way as well as plans for future improvements.
Content Is King
It’s hard to dispute that Netflix is responsible for a variety of groundbreaking, original programming that changed the way consumers view TV. Stranger Things, which debuted in 2016 during the start of the streaming wars, skyrocketed Netflix profits by single-handedly growing its subscriber count to over 158 million members, thanks to a unique blend of sci-fi storylines and 1980’s nostalgia. Season two of Bridgerton recently smashed records as the streamer’s most-watched English-language show, heralded for its racially diverse take on Regency-era England. And last year, Squid Game became a global sensation as the most-watched series in Netflix history. Yet despite these past wins, critics now point to the platform’s foray into reality programming and uninspired rom-coms as a potential source of subscriber disinterest. “Netflix continues to make popular and buzzy series,” wrote film critic Emma Fraser. “But the quality does seem to have dipped.”
What’s more, the binge method of simultaneously dropping all episodes of a new show rather than staggering content on a week-by-week release was a programming innovation that clearly helped Netflix pop from the streaming pack—yet it may be a model that’s difficult to sustain. At a time when the company has hit some hurdles in creating innovative content, weekly releases would extend the duration of existing programs and could help spark conversation by building anticipation. “Everyone loves bingeing, but the downside is because you and I don’t experience shows at the same time, I don’t get to bond with friends over, say, episode four of Squid Game in the way you do with a weekly show,” said one executive at a rival streamer in a recent Vulture interview. “You maybe talk about the show once for 15 minutes, but that’s it.” Netflix, however, still ranks as the world’s top television platform, which should provide needed wiggle room as the company rethinks how to redirect its content budget.
The practice of sharing account passwords is estimated to cost streaming services collectively about seven billion dollars in lost income every year. For Netflix, this is a particularly pricey problem. Roughly 27 percent of British Netflix subscribers reportedly share their passwords with family and friends, amounting to over four million UK accounts. In the company’s top five European markets—UK, France, Italy, Germany and Spain—at least 17 million subscribing households share their passwords, and that number rises to 30 million when looking at the US and Canada. In total, Netflix believes over 100 million homes around the world share passwords as opposed to subscribing for their own streaming service—which in the past didn’t seem to greatly trouble company execs. “Password sharing is something you have to learn to live with because there’s so much legitimate password sharing, like you sharing with your spouse, with your kids,” said co-founder and CEO, Reed Hastings, in 2016. “So there’s no bright line, and we’re doing fine as is.”
But now that the tide has turned for the streamer, a new password-protection plan appears ready to enter play. Rather than freezing accounts or enforcing account verification via a code sent by text or email, Netflix may start charging an extra fee for subscriptions employed by multiple parties outside a single home. This policy is already being tested in Peru, Costa Rice and Chile, where charges vary slightly ($2.13, $2.99 and $2.92, respectively), according to exchange rates. “If you’ve got a sister, let’s say, that’s living in a different city, you want to share Netflix with her, that’s great,” said COO Greg Peters. “We’re not trying to shut down that sharing, but we’re going to ask you to pay a bit more to be able to share with her and so that she gets the benefit and the value of the service, but we also get the revenue associated with that viewing.” This plan is expected to roll out slowly in additional markets over the course of the coming year, and it’s unprecedented. Netflix will be the first major streaming service to crack down on password sharing—which is perhaps fitting for a platform used to breaking the mold.
Ads Get Added
Netflix has famously resisted the addition of ads to its platform over the course of its 25-year history. In fact, in 2017, Hastings said the company wasn’t suited to compete with giants like Facebook and Google in terms of advertising. But now he’s expressing a different sentiment. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” said Hastings. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice.” That choice involves the upcoming introduction of a tiered model combining pricier ad-free plans with more affordable ad-supported options, which likely won’t kick off until 2024. Even when that happens, Netflix is expected to start with a limited amount of ad slots to sell. “I don’t think this is something that floods the market with all this inventory,” said Andre Swanston, VP at credit-reporting firm TransUnion. The ad-tiered result is expected to be overwhelmingly positive for Netflix, based on current data. According to a recent Accenture report, 63 percent of consumers believe paying for every subscription they want is too expensive and they’re willing to watch commercials if it means spending less. 73 percent said they wouldn’t pay extra to remove the ads from their shows. Moving from a strictly subscription model to a new ad-supported plan likely won’t be simple, but the streaming king has always proven itself up to the task of facing challenges. We’ll be watching to see which marketers are first to share their brand stories with Netflix viewers.