Netflix has gradually become popular as a global OTT platform due to its original TV shows like Squidgame, Dark, Black Mirror, Stranger Things, etc. One of the main reasons behind the popularity of this platform was the ability to provide original series and movies without any advertisement interruption. A popular dialogue from the movie Darknight is – “You either die like a hero or live enough to see yourself become a villain”. Netflix was not always adapted to the ad-based subscription model, but now the platform is considering affordable ad-supported subscriptions for its subscribers as well as extra charges to stop password sharing. But why? According to Netflix’s filing in the first quarter of 2022, the company lost more than 200,000 subscribers in that quarter. The company’s stock price fell nearly 40 percent in April alone after the filing. In contrast, at the end of April, Netflix’s market capitalization dropped to about 85 billion, up from 266 billion in January this year. Although Netflix’s competitor’s platforms like Apple TV +, Disney Plus, HBO Max are constantly onboarding new subscribers on their platforms, what exactly has happened is that Netflix, which is at the top of the streaming or OTT platform, has been struggling so much to hold its own?
Overview of Netflix
In 2016, Netflix surpassed Walt Disney as the most valuable media company in the USA. While Netflix had 221.8 million subscribers in the fourth quarter of 2021, it dropped to 221.8 million in the first quarter of 2022, the first time of drastic subscriber fall in the company’s ten-year history. However, the company’s prediction for the quarter was to gain another 2.7 million subscribers which didn’t come into reality. According to company estimation, the OTT giant will lose another 2 million subscribers in the second quarter of this year. The reason, according to experts, is that Netflix relies heavily on licensed content, which accounts for about 63% of the platform’s total content. The amount of original content on the platform is much less than that. In addition, Netflix suspended its operations in Russia after the Russian invasion of Ukraine in March 2022. As a result, the platform lost about 7 million subscribers in Russia.
The current struggle of the organization starts from the loss of such a big amount of subscribers. Despite losing subscribers, Netflix generated 7.78 billion in revenue in the first quarter of 2022, about 2 percent less than the company’s projected revenue of 7.93 billion. However, the company generated about 10 percent more revenue in that quarter than in the previous one.
But right after the news got published of losing subscribers, Netflix’s stock value began to decline. On November 17, 2021, the company’s stock reached a record high of 691 for the first time. But after the publication of the company’s quarterly earnings report on April 18, 2022, the value of the company’s stock fell 63 percent to 186, the lowest level in a decade. In addition to the subscriber loss, another reason for such a decline in stock prices is the predominance of necessity over entertainment. During the pandemic, OTT platforms are one of the mainstays of human entertainment. But the inflation got high and due to an increment in regular life expenses, people are emphasizing more on necessities than entertainment. 84 percent of Americans use 4 streaming platforms, and 64 percent use ad-based subscriptions. In other words, people have no problem viewing low-cost ad-enabled entertainment content. But since Netflix is offering ad-free watching experiences at a premium price, people are walking away from Netflix because they can afford other platforms for less money. As a result, Netflix’s userbase has shrunk and stock prices have plummeted.
High Subscription Charge
Currently, Netflix has a total of 222 million subscribers and more than 100 million viewers who use Netflix through password sharing. Of that 100 million, 30 million are in the US and Canada region. Netflix is pushing hard to stop this password sharing and increase the number of paid subscribers. In this context, after increasing the subscription price in 2019, Netflix has increased its monthly subscription charges in 2022. Currently, in the USA, Netflix users have to pay from $10 to $20 per month for subscription fees, which is quite more expensive than other major platforms. As a result, the number of subscribers in the US and Canada has dropped to more than 600,000. The result is a huge blow to Netflix’s revenue.
When Netflix launched its digital journey in 2008, it only dealt with content from other production houses. Netflix worked more on licensing other creators’ content for its own platform than it did for its own original content, which was not a very good decision in the long run. Gradually, when other production houses build their own OTT platforms and the agreement period expires with Netflix, they took off content from Netflix and put those on their own OTT platform. For example, one of the world’s most popular sitcoms “Friends” was at number three on Netflix’s most-watched list, and Netflix bought the show’s license for about $30 million, but when the contract expired in 2018, Netflix wanted to hold the sitcom rights for another year which cost it another $100 million. Apart from “Friends”, “Gray’s Anatomy” and “The Office” were also leaving Netflix at the time. These type of shows has 63% of Netflix’s total viewer base with a significant portion of Millennials and Generation Z. Despite spending more than three times as much as the original agreement, Netflix could not keep “Friends” on its platform, so this expense was not at all profitable for Netflix at all. Meanwhile, other OTT platforms to which Netflix was losing these shows are rapidly growing by relying on the popularity of these shows and establishing themselves as Netflix’s competitors in a short period of time.
Quantity Over Quality
At the beginning of Netflix’s journey, it had a small amount of original content. So it started buying content from other production houses which later became Netflix’s biggest weakness. Realizing this, Netflix began to invest heavily in original content. The platform then focuses more on quantity than quality. But the audience didn’t appreciate most of the original releases because those weren’t impactful enough to did not leave a lasting impression on the viewers except for a handful of original movies, such as Bird Box, Triple Frontier, Six Underground, etc. Also, the production cost of many original series was much higher due to the high time count of the seasons and episodes. For example, the time count of multiple episodes of the Bridgerton series is more than 70 minutes. Also, due to the slow plot progression of the original Netflix shows, the viewers are not very interested much in watching these shows. Although Netflix is creating original series or movies to fill the gap left by the content of the platform, most of them are not able to attract the audience as expected.
Buzz Worthy Shows
There are basically two types of show performs behind the success of an OTT platform. One category of the show creates excitement among the viewers and another type of show keeps the excitement rolling. In addition to these, there is another type of show which creates hype among the viewers and inspires new subscribers to join the platform. While Netflix has these three categories of shows, ultimately it is failing to create the expected hype among viewers for the third category of shows. For example, Netflix’s high profile series “Love, Death, & Robots” is a kind of hyped content, but it has failed to attract viewers’ attention like Apple TV’s “Foundation” or Disney’s “The Mandalorian“. This means that even after starting operation than Netflix, Apple TV +, or Disney + is creating good content which has been all about creating hype among viewers. Needless to say, Apple TV + is currently leading the way in making hype creating content.
Netflix has taken some steps to overcome this problem. As such the company will add ad-based subscription tires to reduce costs during this period. Also, they have introduced new features like “Double Like“, which will be used to suggest the same genre content by easily identifying their viewers’ preferences. Also, they are thinking of developing storylines in their future content as well as increasing creative excellence. Netflix is also considering bringing cloud-based mobile gaming, and collaborating with other companies on the project. According to gaming companies, animated series help to motivate customers to play the game, so Netflix is considering leaning towards cloud gaming.