The Goliath that is Netflix seems to have finally encountered it’s David, and they don’t know how to solve it or what’s caused it. Following a fairly disastrous first quarter’s earning report, the streaming giant is facing a future where a change in strategies is necessary. While CEO Reed Hastings has some ideas as to what he’d like to see, the path forward is not immediately clear.
Netflix had some conservative expectations for the first quarter of 2022. They were counting on adding at least 2.5 million new subscribers, but didn’t come anywhere close to that goal. While they gained some numbers in various international regions, they lost over 640,000 subscribers in the US/Canada region alone. Adding insult to injury, the company is now expecting to lose an additional 2 million subscribers in the next quarter.
So, why is this happening?
In part, Netflix wants to pin the blame on the Russian invasion of Ukraine. The streaming platform lost 700,000 subscribers by pulling their service from Russia. To be fair, yeah, that’s a good chunk of subscribers lost, but what about the almost equal number that was lost across Canada and the States? Obviously Russia didn’t affect that part, so Netflix has attributed the loss in part due to the pandemic, competition, and account/password sharing.
According to Netflix, of the 222 million paid subscriptions they have, more than 100 million are being shared in a non-paying household. On face value that seems almost disastrous, as if they’re losing 100 million subscribers just because of password sharing. In truth though, that number is misleading. Just because 100 million people are using another person’s password, that doesn’t mean they would subscribe to Netflix with their own money if the password sharing were disabled. It’s like ordering dessert at dinner when you have room for it. Sure it might be delicious but it doesn’t mean you’re going to buy it. But if it were offered for free, you’d totally chow down.
Part of the problem is the increase in price; Netflix is just getting too pricey. Perhaps that’s why Hastings has been discussing the idea of adding a subscription tier that is supplemented by advertisements. The company has also discussed reducing the amount of “content spending” they’ve been doing in exchange for growing their revenue. Honestly though, that might be the worst idea.
Netflix is right that competition is severely hurting them. There are so many streaming options available for consumers that unless Netflix offers up programs that differentiate them from the competition, then why bother subscribing? HBO Max has taken up the mantle of providing stellar original content lately. Between content being made for the streaming service, HBO originals that were broadcast on the cable channel, and their rich archive of classic series, it’s hard to ignore what they have to offer. So if anything, Netflix needs to double down on their efforts to secure content that will make people want to subscribe and continue to generate social media buzz.
While it’s highly doubtful that Netflix is going anywhere anytime soon, unless they start focusing on the right way to solve the actual problems, things will only get worse. For a long while, Netflix was on the top of their game but it’s easy to lose your footing when the competition starts mounting. Let’s see what happens when those estimates for the second quarter finally come around.