In today's Finshots we talk about Netflix and its disastrous performance.

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The Story

2.5 million new subscribers!

That’s what Wall Street expected Netflix to announce this quarter. But instead, they got a very different figure.

200,000!

And no, they didn’t gain these subscribers. Instead, they lost 200,000 subscribers between January and March 2022. For the first time in 10 years, people decided that Netflix simply wasn’t worth the money and removed their credit cards from the app. But it didn’t stop there. Netflix also said that it expected to lose another 2 million subscribers in the coming quarter!

Obviously, stock market investors were appalled at these projections. And Netflix shares have tanked by a staggering 35% since the announcement!!! In fact, it has lost 60% of its value in 2022.

But how did it get here?

Well, for starters, the pandemic seems to be on its last leg right now. People are slowly trudging back to work and they aren’t spending as much time “Netflix and chilling” anymore.

So if you’re wondering how Netflix went from adding 36 million new subscribers in 2020 to this, it’s because the pandemic year was an anomaly. Since then, their performance has been anything but stellar. This is even more obvious when you consider the fact that Netflix was only able to add 18 million subscribers in 2021 — half the number they did back in 2020. In fact, they dubbed it the “Covid overhang” at the time.

As we noted, people were no longer spending as much time watching TV shows and Netflix suffered in tandem.

Also, the competitive landscape is changing. At one point, Netflix's CEO famously proclaimed that their primary competition was “sleep.” But today, everyone and their mother is competing against the streaming giant. Amazon Prime, Hulu, HBO Max, Disney+, Apple TV Plus, YouTube, TikTok and the list goes on. Everybody wants your attention.

But there’s something else making it worse. In times of plenty, the attention economy can thrive as a collective even with multiple players in the ecosystem. However, this time inflation is eating into people’s savings. British households for instance have cancelled video subscriptions in record numbers in a bid to curb non-essential spending. And it’s not just Netflix feeling the heat. Everyone is. Consumers have closed nearly 1.5mn video-on-demand accounts across streaming platforms including Disney Plus and Apple TV Plus according to figures from analytics group Kantar.

In the US meanwhile, the situation is equally grim. With inflation at a 40-year high, reports indicate that 36% of Americans could axe their streaming subscriptions to cut costs.

And while some are sticking to the honour code, others are resorting to more innovative methods — password sharing.

In its letter to shareholders, Netflix said that close to 100 million households simply share their passwords outside of the 222 million households that subscribe to the service. Why pay ₹500 a month when you can just share your account with friends, no?

And for the longest time, Netflix has simply looked the other way. Because, believe it or not — The password sharing business isn’t entirely a loss-making proposition. Take it from Microsoft — a company that’s well acquainted with such an enterprise.  We all used Microsoft products (including Windows) at some point by downloading and installing them using less than legitimate means. But when Bill Gates asked about the piracy menace, he simply said — “…as long as they’re going to steal it, we want them to steal ours. They’ll get sort of addicted, and then we’ll somehow figure out how to collect sometime in the next decade.”

Netflix probably thinks along the same lines. In fact, the streaming giant knows fully well that password sharing has fuelled its growth. Now all they need to do is figure out ways to get them to pay.

And they’ll likely do it in 2 ways.

One — a crackdown is coming. They’ve been working on a solution to prevent password sharing for about 2 years now. And it seems the company will begin rolling out this feature next year. So when it hits the shelves, the 100 odd million people who are currently using someone else’s password will have to pay up or log off altogether

Also, they’ll likely start experimenting with lower-priced subscriptions supported by advertisements. This is something that the likes of Hulu and HBO Max have already worked on. In fact, one report indicates that advertisers in the US are spending nearly $1 billion a month advertising on OTT platforms. And you can see why Netflix wants a piece of this pie.

But there’s something else here. Streaming companies might also want to thank Apple for this windfall. Not following?

Well, remember last year when Apple rolled out something called App Tracking Transparency on their new operating system (we wrote about it here)? Well, let’s just say that the feature made it extremely hard for companies to measure ad performance on social networks like Facebook. And since they couldn’t measure the efficacy of their campaigns here, they simply took their business elsewhere — to streaming platforms.

So yeah, maybe this advertisement gig has been a long time coming. And now we will just have to wait and see if Netflix can script a comeback once again.

Until then...

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