Netflix is the leading streaming service, with over 200 million worldwide subscribers. But, Netflix recently lost almost a million subscribers between April and July as more people decided to quit the streaming platform and its stock price dropped significantly. The streaming platform has now lost members for two quarters in a row making it the biggest subscriber loss in the firm’s history Highest number of cancellations in the past three months came from the US and Canada followed by Europe. But Netflix losing its subscriber base may encourage Wall Street investors to take a more realistic look at Netflix and the streaming industry in general.
This current scenario of Netflix losing its subscriber base is the result of the following 6 factors
1. Costly Subscription Plans
In the Indian context, Netflix is facing heavy competition from players like Prime Video, Disney+Hotstar, Voot, and Zee5. If we compare the monthly plans, Netflix might not be the costliest but other streaming platforms have economical tiered plans compared to Netflix.
India is one of the biggest entertainment markets in the world. So it is mandatory for an entertainment brand to establish dominance here. In a recent user acquisition drive, Netflix reduced the monthly subscription prices down to ₹149/month to compete with the other players.
But this price increase is inevitable because Netflix can’t continue burning cash in a highly competitive market for long. The cost of producing movies and shows don’t sit well with such low cost plans.
2. Show Cancellations
Netflix is solely driven by data. The decision about whether to renew the show for the next season or to drop it depends on whether the show’s cost of renewal balances out the viewership. The show does not only need to be watched by the existing audience, but it also needs to bring in new subscriptions.
Moreover, the cost of production of successive seasons is always higher than the previous one. This means that if Netflix isn’t gathering enough views to compensate for the expense of renewal, the show eventually gets cancelled.
Presently, Netflix has a renewal rate of 67%, which is a general industry standard but this still enrages fans considering how Netflix has called off shows that held potential to gather cult following.
3. Massive Production Costs
Netflix isn’t a movie production house. It is a content aggregator platform. Rather than making movies itself, Netflix buys the rights to a movie or a series. So if the show flops, Netflix has to bear the brunt of that loss. Unfortunately, there are a number of shows that haven’t performed well and fell flat with the audience. Shows like Emily in Paris, Space Force, Hollywood, Away, Marco Polo, Gypsy, etc were deemed to be critical flops
To cope up with the insatiable content hunger of the audience while competing with other streaming platforms, the economies of scale don’t match up.
4. Excessive Password Sharing
Another thing that made users furious was the company’s announcement about the crackdown on password sharing. It is estimated that approximately 100 million households across the US are using Netflix for free via password sharing. A major chunk of Netflix users are youngsters. Youngsters are twice more likely to share passwords than the older users. But with increased subscription pricing that are likely to hit in the near future, Netflix is alienating this user segment. The users are now rethinking about their streaming service choices more carefully.
5. Competition
Netflix is facing cutthroat competition from the other streaming platforms like HBO Max, Amazon Prime Video, Disney+, Apple TV+, Paramount+, Hulu, etc. on a global scale. The old time production houses have launched their own streaming platforms. They are pulling off their content licensed to other streaming platforms and offering it on their own platform. While all the content on Netflix is OK, people also want to enjoy
Netflix is also facing tough competition from the regional streaming players. Not only do these platforms offer their streaming services at cheaper rates to acquire new customers, but they are also putting out quality content, with much lower cancellations rates. These platforms are catering to a niche audience with a specific content focus in mind.
6. Economy
The pandemic brought the production of many movies and shows to a stand still. This was also one of the reasons that Netflix had to cancel a few shows because of increasing production costs. Meanwhile, competition also saw an opportunity to ,
The Russia-Ukraine war was another reason that Netflix saw a decline in subscribers because of its decision to withdraw itself from Russia. Netflix lost around 700,000 subscribers there.
Inflation also caused people to re-think their spending habits. People chose the lean budgeting approach and Netflix being one of the most expensive streaming platforms in the market, subscribers made the obvious choice to prioritize food and shelter over entertainment.
Path Forward
Focus on quality content: Netflix needs to create more shows that earn Emmy nominations and increase its renewal rate. It also needs to do something about the binge-watching model. Instead of releasing all episodes at once, Netflix needs to release episodes on a weekly basis. This allows to have more conversation around the content and gives time to new users to join in.
Ad supported streaming: Netflix is already planning to launch ad supported streaming in January 2023. This will help them to offer cheaper plans on one end while increasing prices for their premium plans on the other end.
