How Can Netflix Revive?

How Can Netflix Revive?

The headline failure for?Netflix?is a reduction in subscribers for the first time in a decade. Wall Street analysts had been expecting it to announce the growth of about 2.5 million new customers and were stunned when the company instead confirmed more had canceled than joined.

Netflix’s share price has tumbled after it announced a net loss of 200,000 subscribers globally and?expects to lose a further two million over the next three months. Its share price slid more than 35% in early trading on Wednesday following the announcement,?wiping around $55bn (￡42bn) off its value.

It is the latest massive miss from a large technology company and has sparked a flurry of fightback efforts. But can the streaming service carry on growing forever? And do its plans for the future show confidence – or panic?

Around the world, Netflix has 222 million subscribers. In its biggest markets, however, it has an appreciable portion of all households: in the US and Canada, 75m out of a total 142m households have a subscription to Netflix. When you add in password sharing, which Netflix says accounts for 30m additional households using the service in North America, it becomes clear the company is fighting for new signups from a rapidly shrinking pool of non-subscribers.

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Thousands of subscribers are canceling Netflix, and there are several key reasons why the streaming giant is going through hard times. Netflix essentially invented its industry with subscription streaming, offering customers an all-they-could-watch buffet of movies and shows that they could access for one low monthly fee. For a long time, Netflix's main streaming plan was only $7.99 a month, making it an extremely economical form of entertainment. Sadly, that price is now much higher, but that's only the tip of the iceberg.

Earlier this week, Netflix announced that they had lost 200,000 subscribers in the first quarter of 2022, and expect to lose a whopping two million more in the second quarter. This comes after a long period of sustained growth for the company, which for many years sat almost unopposed as the 800-pound gorilla of streaming. It's no wonder that Netflix's stock price dropped sharply, as when investors aren't used to ever getting bad news, any kind of bad news seems worse.

Did price rises play a part?

Netflix has been increasing its monthly fees sharply around the world, with some UK subscribers now paying a third more than they were less than two years ago for the same service. But the company says it has been happy with the results, saying the rises “remain significantly revenue positive” – and thinks it still has “among the best retention in the industry”. Netflix also points out that, were it not for the war in Ukraine, it would have gained subscribers: it suspended services in Russia, losing 700,000 accounts in the process.

However, Netflix is exploring the possibility of a soft price cut, in the form of an ad-supported tier, according to Reed Hastings, its chair and co-founder. A cheaper subscription funded by adverts could help expand Netflix into households and regions that had previously been unable to afford the service at full price, a move that has previously been roundly rejected by the company.

What about all the people sharing passwords?

Netflix estimates 100m households globally access its services through password sharing. For years, it has tacitly allowed the practice, which functions as an effective discount, even building it into its pricing structure with tiers of membership that allow for more devices streaming simultaneously.

But now, it has started experimenting with stricter controls to try to turn some of those additional households into customers in their own right – particularly because, unlike homes that are not subscribed to Netflix at all, those shared users have the right technology to use the service.

In trials in some South American countries, Netflix has simply started to ask subscribers to pay a small additional fee, about $3 a month, if they share their service with people outside their household.

What else could Netflix try?

The deeper question for the company is whether it needs to change its actual product, rather than simply fiddling with price points and subscription tiers. Unlike many of its competitors, Netflix has focused almost entirely on a relatively narrow slice of original and licensed film and TV. The approach?has been praised?for building up an extensive library of evergreen content that can drive new subscriptions but has limited the service’s appeal in other areas.

In contrast, competitors such as Amazon, Apple, and Disney have looked to include sports, news, and light entertainment in their wider packages. A 2018 report suggested Netflix was exploring news programming, but the company instead appears to have gone down other routes –?launching a free gaming service for subscribers.