After Netflix announced this week that it had lost subscribers for the first time in a decade, it suggested that A global crackdown on password sharing may be imminent. Such measures could include charging users to share their accounts outside of their household.
The global streaming engine ended the first three months of the year with Less than 200,000 subscribers, much lower than the 2.5 million paying customers predicted. The company lost 700,000 subscribers in early March following its decision to suspend service in Russia following its invasion of Ukraine.
Netflix, now with 221.6 million users, saw a record growth in demand in the early days of the pandemic as people around the world stuck at home and flocked to screens to watch. shows and movies.
But password sharing and stiff competition from other streaming platforms have made it difficult for Netflix to pull in new viewers.
To increase subscribers and limit revenue loss, the company proposes to implement some new measures, such as charge users to share passwords and introduce a cheaper, ad-supported plan.
Here’s everything viewers can expect from Netflix going forward.
A potential crackdown on password sharing
There are more than 100 million households that use Netflix but don’t pay for it, the company said in a statement letter to shareholders on Tuesday.
Netflix admits that it has allowed users to share their passwords because it has attracted more people on its platform. But increased competition from Amazon Prime Video, Hulu, Disney+ and others has made it much harder for the company to grow its member base.
“Our relatively high level of household penetration – when including large numbers of account-sharing households – combined with competition, is creating revenue growth whirlwinds,” Netflix wrote. in your letter.
Last month, Netflix announced it will start experimenting with ways to make users in Chile, Costa Rica and Peru share password pay a fee for additional members.
The model could expand to other countries, executives said during the company’s earnings press conference on Tuesday, but it was unclear when those changes would be implemented.
A cheaper, ad-supported service
Netflix co-founder Reed Hastings has long resisted supportive ads, but the company reversed course on Tuesday.
“People who have watched Netflix know that I have resisted the complexity of advertising, and I am a huge fan of the simplicity of subscriptions,” Hastings said in a recorded interview. “But I’m a fan of that, I’m a bigger fan of consumer choice. And it makes sense to allow consumers who want lower prices and tolerate advertising to get what they want.”
Hastings argues that Netflix’s decision to adopt an ad-based subscription model for competitors suggests that the streaming service can outsource ad targeting.
“In terms of profit potential, for sure, the online advertising market has grown and now you don’t need to combine all the information about people you used to know,” he said. focus on our members, creating that great experience. ”
The move to advertising has been greeted with skepticism by some Wall Street analysts, including Rich Greenfield, partner and technology and media analyst at LightShed Partners. Adding ads will likely lead to lower watch time per user per day and ultimately higher user revenue, he said.
“The question for Netflix and the ads is whether this is the answer they really believe in, or is this desperation from a management team that doesn’t know what’s going on with their business right now. ?” Greenfield wrote in a note to clients.
‘Pull back’ content spend
To further revenue growth, Netflix said it will also “step back” from spending on its movies and TV shows.
“We’re pulling back on some of our spending increases across both content and intermittent spending,” Chief Financial Officer Spencer Neumann said in a recorded interview. “We’re trying to be smart about that and are cautious about pulling back some of that spending growth to reflect the reality of the business’s revenue growth.”
Greenfield, a Wall Street analyst, said it was a necessary move but perhaps not enough.
“The biggest problem that really hasn’t been addressed is that Netflix content, especially English-language content, simply doesn’t resonate with spending,” he wrote.
At $17 billion annually, Netflix now spends more on content than any of its competitors, Greenfield noted. While that level of spending should probably be scaled back, Netflix must rethink its content strategy more broadly, Greenfield said.
“Better yet, we don’t think about quality, we mean content that appeals to aficionados, whether it’s ‘The Crown’ or ‘Stranger Things’ or ‘Squid Game’ or ‘Squid Game’. ‘Tiger King’,” he said.
“While consumer appeal to Netflix content has always been important, the need for ‘better’ content has become much more important as competition has increased dramatically over the past two years.” , Greenfield said. “Having an amount of ‘good enough’ content is no longer enough.”