Netflix undergoes change of plans to compensate loss of viewers : may offer cheaper ad-supported plans

Kavin Kishore
Kavin Kishore April 20, 2022
Updated 2022/04/20 at 7:52 PM

Netflix said that inflation, the war in Ukraine and fierce competition contributed to a loss of subscribers for the first time in over 10 years and predicted greater losses ahead. Suspending service in Russia after their invasion into Ukraine took its toll- this resulted overall 700 000 members being lost. Wall Street sent Netflix’s stock tumbling 26% after trading hours on Tuesday (today), resulting it fresh about $40 billion equity market value being erased roughly equating to Rs 3,05,320 crore rupees). Since they warned earlier this year of slow subscriber growth rates they have also lost nearly 50% of their share price valuation since last January when these warnings were initially made public by them – as such with these latest warning/losses making headlines; Netflix is now contemplating offering a lower priced version with advertising which will be similar to what rivals HBO Max or Disney+ are doing citing how successful those offerings have been so far.

Netflix CEO Reed Hastings has been against advertising and for simplicity. Yet he acknowledges that people want a choice, which is why Netflix offers both options: the option to be a member and have no ads or the option of being an ad-subscribed customer. Last week Netflix offered gloomy predictions about losing 2 million subscribers in this quarter due to its popularity at certain times of year as well as other factors such as the influenza pandemic (which made it difficult for them to interpret what was happening with their subscription business over the last two years).

Reed also said “I’m an even bigger fan” when speaking about consumer choice; consumers are able now choose between memberships without ads and subscriptions with advertisements.

It appears that the culprit of this is competition, which has made it harder for Netflix to grow.
“When we were growing fast, it wasn’t a high priority to work on,” Hastings said in his investor video presentation about account-sharing. “And now we’re working super hard on it.”

Netflix’s first-quarter revenue grew 10 percent to $7.87 billion (roughly Rs. 60,080 crore), slightly below Wall Street’s forecasts. It reported per-share net earnings of $3.53 (roughly Rs 220).

While the company remains bullish on the future of streaming, it blamed its slowing growth on a number of factors, such as the rate at which consumers adopt on-demand services, a growing number of competitors and a sluggish economy.” Account sharing is an established practice and Netflix doesn’t want you to have access for free so they’re exploring ways to derive profit from 100 million households watching Netflix through shared accounts in Canada or 30 million in America alone.”

This confluence led them into reporting losing customers for the first time since October 2011; catching Wall Street by surprise!

The world’s dominant streaming service was expected to report slowing growth, amid intense competition from established rivals like Amazon.com, traditional media companies such as Walt Disney and the newly formed Warner Bros Discovery and cash-flush newcomers like Apple. Streaming services spent $50 billion (roughly Rs 3,81,790 crore) on new content last year in a bid to attract or retain subscribers according to researcher Ampere Analysis. This is 50% more than what they had spent the previous year when many of these newer streaming services launched signalling an escalation of “streaming wars”.

Netflix noted that while competition intensifies, they have been maintaining their share of TV viewing in the US according to Nielsen. The company is now focused on other parts of the world and investing in local-language content.

“While hundreds of millions pay for Netflix, well over half the broadband homes don’t yet — representing a huge future growth potential,” it said in a statement.

Benchmark analyst Matthew Harrigan warned about uncertain economic conditions impeding members’ growth and Netflix’s ability to continue increasing prices as competition increases.”Streaming services are not the only form of entertainment vying for consumers’ time.”, he added. The latest Digital Media Trends survey from Deloitte, released in late March, revealed that Generation Z, those consumers ages 14 to 25, spend more time playing games than watching movies or television series at home, or even listening to music.

The majority of Gen Z and Millennials polled said they spend more time watching videos on TikTok and YouTube than streaming movies or shows.

“Today’s report shows that there is limit to Netflix’s long-term bullish thesis,” David Keller, chief market strategist at StockCharts.com, says.

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