How will Netflix solve its financial problems?
A couple of months ago we discussed why Netflix was experiencing a fall in subscriber count because of a wide variety of reasons including increased competition, password sharing and the Russia-Ukraine crisis, just to name a few.
Based on estimates from April 2022, the company had expected that it would lose about two million subscribers by July. As the company released information about its quarterly earnings this month, it breathed a sigh of relief as they have lost only one million subscribers, half of what they were expecting to lose by this point in the year. Let’s follow up on Netflix’s situation now and what the future holds for the company.
How Netflix is trying to acquire more subscribers
Naturally, Netflix wasn’t going to take the situation lying down, they had been planning many decisive changes since the first significant subscriber loss. So, to get more people to subscribe, the company finalized its plans of offering an ad-supported tier to lower subscription costs earlier this month. For this, Netflix is collaborating with Microsoft, making it the streaming platform’s “global advertising technology and sales partner”. Reports suggest that Netflix is planning on launching this tier by the end of the year and has plans to create ad-supported versions of all its current tiers (i.e. Basic, Standard and Premium).
Addressing the popularity of freemium in the Asia Pacific region (APAC), the company also cut down prices in India by 25% in December last year. India seems to be an important market to Netflix, as the company even created a special mobile tier for the country in 2019 that charges US$2.88 (INR 199) a month. Despite these attempts, they have seen a 2% drop in average revenue per membership (ARM) in APAC countries. If not counting in India, the ARM has increased by 4% in the APAC region. This should tell us that Netflix needs to change its strategy with how it approaches India.
What still needs to be done
In the meeting for its second-quarter (Q2) earnings, the company discussed the different strategies deployed at the moment, including the ad-supported tier as well as its crackdown on password sharing. “We’ll sort of see what works for consumers. That’s obviously the reason we’re trying these different approaches, is to learn more. We’re learning a lot every day on a daily basis at this point in time based on what we’ve deployed,” explained Gregory K. Peters, Netflix’s COO and Chief Product Officer. Here are some of the major areas in which Netflix is receiving criticism from viewers:
Inconsistent Content quality
But testing new approaches, like the ad tier and paid profile, alone might not be enough. Experts suggest that Netflix needs to work on quality control. While the company has had some great global successes with some of its shows, like Squid Games and Bridgerton, it puts out a lot of shows which don’t live up to the same quality standards. Netflix releases, like Emily in Paris, and films, like Persuasion, have been heavily bashed by critics.
Inability to meet the needs of a diverse audience
Getting the content right is going to be crucial to Netflix’s long-term success. For instance, In the U.S., the company’s home base, the number of subscribers in the older age range are increasing. This has compelled Netflix to create content for a wider audience that might not appeal to the younger generations, making it harder for people to find those rare gems they would have earlier been searching the Netflix library for. Managing both the needs of their current younger audience and their growing older audience is going to be another tough challenge that Netflix faces.
Another need that Netflix is not catering to enough is the provision of local, original productions. Going back to Netflix’s failure in capturing the Indian market, some attribute that to a lack of content in regional languages, particularly when compared to other players, such as Amazon Prime Video, in the market.
This doesn’t mean that all hope is lost. With Stranger Things season four being streamed for a billion hours, it would only be fair to say that the company does know how to deliver engaging content. Some suggest that dividing this season into two parts and releasing the last two episodes in July helped increase viewership ahead of the company’s release of Q2 earnings.
No way but down?
Experts have different things to say about Netflix’s recent fall in subscriber count. “When you’re the leader, there’s only one direction to go, especially when a large amount of competition launches, which is what Netflix has seen in the last couple of years,” says Guy Bisson, Executive Director at U.K.-based data analytics firm Ampere Analysis.
Others, like Santosh Rao, Head of Research at Manhattan Venture Partners, feel that Netflix has been a long-time player in the over-the-top (OTT) entertainment market and will likely maintain its position once the subscriber count settles down. Judging by the fact that Netflix’s share price rose by 4% from US$201 to US$208 after the release of the Q2 earnings report, investors have faith in the company’s long-term success as well.
With the U.S. dollar increasing in value, the company is bracing itself for impacts in the international markets. Despite everything though, Netflix remains positive. Netflix’s CEO, Reed Hastings admits that it’s tough to lose a million subscribers, but he considers it a success and asserts that the company is well set up for the next year. For now, it is still to be seen how Netflix’s strategies will play out.
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Header image courtesy of Pixabay