Is Netflix dead—or headed for a rebound?
Last week, Netflix released a new subscription tier to attract more customers, ‘basic with ads.’ However, this announcement comes on the heels of Netflix’s heavy subscription losses during the first two quarters of 2022. Knowing that, you can’t blame anyone for being skeptical. Some people even started saying Netflix might be dead in the water because Disney’s rival streaming services subscriber count also caught up to Netflix’s 220 million.
But in the third quarter, Netflix smashed earnings predictions after adding $2.4 million subscribers, which got me thinking. Buffet often says the stock market and quarterly reports make you short-sighted where the long-term matters. So I’m taking a step back to recap Netflix’s strategy to discover if I’m still a believer.
Source: NY Times
Netflix Strategy
Netflix’s strategy has been to produce bingeable and data-driven original content. When House of Cards premiered in 2013—and all 13 episodes were released at once— the show was ideal for bingeing in a single sitting. This was one of the earliest signs that Netflix could produce successful original content. And they have produced more successful original films than many had expected. One of my favorites is Sex Education, and there are others like The Crown, Bridgerton, Sex Education, Emily in Paris, and Stranger Things.
Stranger Things is a great example of Netflix’s success with original content. The second season of the show was released all at once on a Friday right before Halloween reaching 15.8 million views on the opening weekend. And when the final season dropped this summer, it broke the premiere weekend record for an English-language TV show on Netflix, with 286.7 million hours streamed.
While I can’t speak to how Netflix uses data to decide which movies to produce, Jenny McCabe, Director of Global Media Relations, can.
“We look for those titles that deliver the biggest viewership relative to the licensing cost. This also means that we’ll forgo or choose not to renew some titles that aren’t watched enough relative to their cost. We always use our in-depth knowledge (aka analytics and data).”
Netflix lures customers by initially leasing, not buying, content to attract customers. It then collects data to generate original content for the platform that can help it keep those customers when the movie leases end. The rebound in subscriber growth this quarter, for instance, can be attributed to successful original shows in Asia and the Jeffrey Dahmer story in North America.
But some subscribers are inevitably lured to competitor platforms. Some are Marvel fans, so they go to Disney+. Some must watch the Game of Thrones sequel, House of the Dragon, on HBO Max.
She-Hulk: Attorney at Law
Disney and HBO Max
Searching online for numbers on Disney subscribers can quickly get confusing. The news that Disney had reached Netflix’s 220 million subscriber count doesn’t remind you that Disney also owns Hulu. Disney+ alone has about 150 million subscribers, Hulu (which isn’t all paid subscribers) has over 45 million, and other services like ESPN+ make up that 220 million.
Beyond the numbers, Disney’s position is fundamentally different from Netflix’s. Disney’s strength is its content from not data but established brands. It owns some of the biggest names like Walt Disney Pictures, Pixar, Lucasfilm, 20th Century Studios, and Marvel Studios. For context, the Marvel franchise is worth $53 billion, and Disney also owns Star Wars, Toy Story, Cars, and ESPN.
In the entertainment industry, it’s said that content is king. Some would say HBO is that king. You‘ve certainly heard of some of its most popular shows, Succession, Euphoria, Curb Your Enthusiasm, The Rehearsal, and Westworld.
HBO had its biggest series premiere when House of the Dragon (HOD) debuted this August with 10 million viewers and me. For comparison, House of Cards had 670,000 people binge-watch the first season of the show on the first weekend back in 2013. HOD had such a large viewership because of the existing fanbase from HBO’s iconic Game of Thrones.
After watching the HOD season finale last week, I’m hooked. Competition in streaming services is certainly stiff.
Game of Thrones: House of the Dragon
The road ahead for Netflix: Password Sharing and Advertisements
When Netflix founders Reed Hastings and Marc Randolph decided to enter the entertainment industry, they signed up to go against giant incumbents. Many years ago, that incumbent was Blockbuster. Now, from a content perspective, it’s Disney and HBO Max.
While the company’s subscriber count dipped earlier this year, I think this is just a bump in a success story. One reason for the lower subscriber count is password sharing. About a third of all subscribers share their passwords with friends and family. Netflix will start charging accounts for password sharing, instituting a system that adds fees of probably $2.99.
To improve profitability, Netflix is also making it cheaper to access its service. Its standard tier costs $16 compared to Disney and HBO Max’s $10. Netflix introduces basic with ads, a new service tier that costs $7 in the US. ‘Basic with ads’ will cost a dollar less than Disney’s to-be-released ad plan and will launch a month earlier too!
With this much change in ad-subscription packages and increasing competition between the streaming giants, I think we are nowhere near the end of this story. Maybe I’ll tell you more when I try the new ‘basic with ads‘ out on Nov 3.
Thanks to Effie Oluoch, Pia Singh, and Saaketh Narayan for reading drafts of this.
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