New York, Dusseldorf Netflix has never lost so many customers: 970,000 users in the past quarter, as the streaming service admitted on Wednesday night when presenting its quarterly figures. Netflix had already recorded a minus of 200,000 subscribers in the first quarter. The slump follows a decade of growth.
Netflix boss Reed Hastings emphasized when presenting the figures that an even bigger loss was originally expected. “We’re talking about losing one million customers instead of two,” he said in a conference call, interpreting this as a positive sign: “If we look ahead, we see that streaming works everywhere. Everyone is pouring into the market.”
While customer numbers in the US and Europe declined, they increased in Asia. The fourth season of the series “Stranger Things” about teenagers hunting monsters was particularly successful. This pleased investors, who let the share rise by up to twelve percent in after-hours trading. Overall, however, the paper has lost 70 percent of its value since last autumn. Revenue growth also fell short of Wall Street expectations again.
Netflix loses 970,000 subscribers in the second quarter of 2022
For the streaming pioneer, the new numbers are another warning sign. For the past 15 years, Netflix has disrupted the media industry. The company made it from scratch to its current 220.7 million subscribers. Netflix is still the market leader by far. However, the growth knew no bounds for a long time, then it weakened – now Netflix is losing customers.
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While the pioneer weakens, the competition strengthens. The biggest pursuer Disney plus only started in autumn 2019 and already has almost 140 million customers – with growth rates that Netflix once knew. The Handelsblatt shows why the service is losing and how the company wants to take countermeasures.
Reason 1: The competition from Netflix is getting bigger
Netflix is going from hunter to hunted. Once alone on the market, industry experts now count over 200 streaming services worldwide. As the global market leader, Netflix has already reached a large number of people, which makes further growth difficult, says Bernd Riefler, head of the Munich analysis company Veed Analytics. “Some Netflix customers see wear and tear over time, try other providers and stick with them.”
The competitors are financially strong corporations such as Amazon, Disney or Apple. While Netflix has to make its money from streaming alone, its competitors have income from cloud services, from amusement parks and merchandise, or from the sale of cell phones and laptops. In times of rising production costs, this proves to be an advantage because the competition can cross-finance them from their other sources of income.
Overall, the industry has good prospects. According to a study by strategy consultants Simon-Kucher & Partners, streaming will replace conventional TV for 60 percent of those surveyed worldwide. That explains why more providers are pushing onto the market in Germany too: the US film distributor Warner Bros. has just started with Discovery plus, and Paramount plus will be added in December.
However, users cannot view an unlimited number of services, especially as the range of services is becoming increasingly confusing. According to market researcher Kantar, Germans currently have an average of 2.8 streaming subscriptions. “There will be more cut-throat competition in the streaming market because customers only have a certain time and money budget,” says Lisa Jäger, head of the technology, media and telecommunications industry team at Simon-Kucher. According to industry experts, the competition is increasingly being decided on the content.
Reason 2: Netflix needs to improve the content
But this is exactly where experts at Netflix see room for improvement. Netflix needs to rethink its content strategy to reach more audiences in the future, says Forrester analyst Mike Proulx. Disney has strong brands like Star Wars or Marvel that “have a great appeal”. Apart from the current series “Stranger Things”, Netflix offers “nothing comparable”, according to the expert.
Netflix plans to release 180 new series this year alone, and the catalog includes over 6,000 films, series and documentaries. This not only devours billions for production and rights, viewers are also finding it increasingly difficult to keep track.
The Netflix boss wants to introduce an advertising-based subscription.
(Photo: imago images/Hindustan Times)
The competition from Netflix seems more focused – and offers special features. For example, Amazon broadcasts football matches in the Champions League. Local providers such as RTL plus also have to be taken seriously in individual markets. The Cologne TV broadcaster’s service doubled its number of customers last year to 3.2 million. In the future, audio books and newspaper articles will be available there in addition to films and series.
>> Read more: Fight against Netflix: RTL plans platform for videos, podcasts, books and magazines
Netflix boss Hastings admitted in the spring that the competition had “very good shows and films on offer”. You have to “gain a tooth”. In order to convince viewers, you need highlights and a wide range, says Sabine Anger, Head of Streaming for Central and Northern Europe and China at Paramount. “Extraordinary productions whet the appetite of users for the streaming service. A wide range ensures that they stay.”
Reason 3: Netflix is more expensive than the competition
Netflix’s woes could intensify amid inflation. According to the Simon Kucher study, 35 percent of streaming users worldwide want to cancel at least one streaming subscription in the next twelve months, in Germany it is almost 25 percent.
Netflix is not immune to this either: “The relatively high subscription prices could become a problem if consumers want to lower their streaming bills,” write analysts at the major US bank Morgan Stanley. In Germany, the standard package from Netflix costs almost 13 euros per month, Disney plus is available for just under nine euros and Amazon for eight – whereby customers can not only stream, but also get their package orders faster.
On average, households are willing to spend 20 euros per month for streaming subscriptions, according to figures from the online advertising company Trade Desk. If users saved their Netflix access, they could afford more other, cheaper services.
Possible solution: Netflix wants an ad-supported subscription
Netflix seems to have recognized the problem. The service wants to introduce a cheaper advertising-financed subscription model. Netflix boss Hastings had resisted this for a long time. But you can win or keep users for whom a subscription has been too expensive, said the manager in the spring. Customers can then choose from another plan that costs less but includes advertising.
Netflix follows the example of the competition: At Amazon, the launch in Germany is planned for this year. Disney is planning to do so initially in the USA and internationally in the coming year. At Netflix, the advertising variant is expected to start in early 2023, initially in “a handful of markets,” according to Hastings. Apple alone has so far eluded this development. An advertising-financed offer will be introduced by many providers in the medium term, according to Paramount manager Anger.
This marks the beginning of a new era in the streaming market, which is being accelerated by inflation: streaming was originally launched as an ad-free counter-model to classic TV, but in future users will have to get used to advertising if they want to spend less money. Paramount plus in the USA costs almost ten dollars a month in the premium tariff, the advertising tariff only half as much. Industry experts calculate twelve minutes of advertising per hour in Germany, and even 20 minutes are accepted in the USA.
>> Read more: These three graphs show how streaming around the world replaces television
The plan could work: According to data from market researcher Kantar, the number of streaming subscriptions per household in the USA rose from 3.1 at the beginning of 2021 to 4.8 most recently – mainly driven by cheaper advertising subscriptions. In the Simon Kucher study, 53 percent of all global respondents who want to cancel their subscription also state that they would keep their service if it became cheaper through advertising.
In Germany, however, the corresponding proportion is only 36 percent. The willingness to accept advertising is less pronounced than in almost any other country. “Especially in Germany, advertising in the streaming market is not becoming a panacea,” says partner Jäger.
Netflix‘ Reinvention takes time
One thing is clear: the reinvention of Netflix will take time. In order to keep customers loyal, experts advise the service to publish new episodes more often on a weekly basis and not all episodes of a new season at once. “This strategy works because it keeps users on the platform for a longer period of time,” says Forrester analyst Proulx.
And streaming expert Riefler suggests that Netflix should also offer an annual subscription for direct customers for the same reason. Competitors like Disney or Amazon have an annual plan at a discounted price.
In addition to advertising, Netflix tries to generate revenue from games. Inspired by the Disney theme worlds, Netflix is focusing on so-called “Experiences” in three cities, a mixture of ghost train ride and escape room game, in which fans can get close to the stars of the hit series “Stranger Things”.
Whether in the real world or on the TV set: The struggle for most customers will continue. Analyst Proulx says: For the foreseeable future, the battle in streaming will be fought between Netflix and Disney plus. “The wrestling is open as of today. Anyone can win it.”
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First publication: 07/20/2022, 03:18 am.