Netflix loses fewer subscribers than feared

New York, Dusseldorf Netflix didn’t lose a significant number of customers: 970,000 users in the past quarter, the streaming service admitted Wednesday night when presenting its quarterly numbers. Netflix already scored less than 200,000 subscribers in the first quarter. The recession came after a decade of growth.

Presenting the numbers, Netflix chief Reed Hastings confirmed that a bigger loss was originally expected. “We are talking about losing a million customers instead of two,” he said on a conference call, interpreting this as a positive sign: “Looking ahead, we see that broadcasting is working everywhere. Everyone is flocking to the market.”

While customer numbers declined in the United States and Europe, they increased in Asia. The fourth season of the series Stranger Things about teenagers who hunt monsters was a particular success. This pleased investors, who allowed the stock to rise up to twelve percent in post-closing trading. Overall, the newspaper has lost 70 percent of its value since last fall. Revenue growth also missed Wall Street expectations again.

Netflix lost 970,000 subscribers in the second quarter of 2022

For the broadcast pioneer, the new numbers are another warning sign. Over the past 15 years, Netflix has disrupted the media industry. The company has made it from zero to currently 220.7 million subscribers. Netflix is ​​still the market leader by far. However, growth knew no bounds for a long time, and then waned – now Netflix is ​​losing customers.

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As the pioneer weakens, the competition increases. The biggest stalker, Disney plus, only started in the fall of 2019 and already has nearly 140 million customers — with growth rates that Netflix has known before. Handelsblatt explains why the service is lost and how the company wants to take countermeasures.

Reason 1: The competition from Netflix is ​​getting wider

Netflix goes from hunter to stalker. Once they hit the market on their own, industry experts now count more than 200 streaming services worldwide. As the global market leader, Netflix has already reached a large number of people, which makes further growth challenging, says Bernd Revler, head of the Munich-based analysis firm Veed Analytics. “Some Netflix customers see wear and tear over time, try other providers and stick with them.”

Competitors are financially strong companies such as Amazon, Disney or Apple. While Netflix has to make its money streaming on its own, its competitors get income from cloud services, from theme parks and merchandise, or from selling cell phones and laptops. In times of high production costs, this proves to be an advantage because competition can finance it from its other sources of income.

Draw

In general, the industry has good prospects. According to a study by strategy consultants Simon-Kucher & Partners, live broadcasting will replace traditional television for 60 percent of those surveyed worldwide. This explains why more suppliers are pushing into the market in Germany as well: American film distribution company Warner Bros. Just in Discovery plus, 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 broadcast subscriptions. “There will be more intense competition in the streaming market because clients only have a budget for time and money,” says Lisa Jagger, Head of Technology, Media and Telecommunications at Simon-Kucher. According to industry experts, competition is increasingly being determined over content.

Reason 2: Netflix needs to improve the content

But that’s exactly where the 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 lot of appeal”. Aside from the current series “Stranger Things,” Netflix offers “nothing to compare,” according to the expert.

Netflix plans to release 180 new series this year alone, and the catalog includes more than 6,000 movies, series, and documentaries. Not only is this devouring billions for production and rights, but viewers are also finding it increasingly difficult to keep track.

Red Hastings

The head of Netflix wants to offer an ad-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 like RTL plus should also be taken seriously in individual markets. The Cologne TV broadcaster service doubled its customer base last year to 3.2 million. In the future, there will be audiobooks and press articles as well as movies and series.

>> Read more: Fight Netflix: RTL plans a platform for videos, podcasts, books and magazines

Netflix chief Hastings admitted in the spring that the competition offers “very good shows and movies.” You have to “gain a tooth”. In order to impress viewers, you need things that stand out and scale, says Sabine Unger, Head of Live Broadcasting for Central and Northern Europe and China at Paramount. “The extraordinary products whet the appetite of users for the live streaming service. The wide range ensures their survival.”

Reason 3: Netflix is ​​more expensive than the competition

Netflix’s problems may be exacerbated amid inflation. According to Simon Kucher’s study, 35 percent of broadcast users worldwide would like to cancel at least one broadcast subscription in the next twelve months, in Germany it is about 25 percent.

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Netflix isn’t immune to this either: “Relatively high subscription prices could become a problem if consumers want to cut their streaming bills,” analysts at US bank Morgan Stanley wrote. In Germany, the standard package from Netflix costs about 13 euros per month, Disney plus is available for just under nine euros and Amazon for eight – where customers can not only stream, but also get their package orders faster.

On average, households are willing to spend €20 per month for streaming subscriptions, according to figures from commercial advertising firm Trade Desk. If users save their access to Netflix, they can afford other services that are cheaper.

Possible solution: Netflix wants an ad-supported subscription

It looks like Netflix has identified the problem. The service wants to offer a cheaper, ad-funded subscription model. Netflix chief Hastings has resisted this for a long time. The manager said in the spring that you can win or keep users whose subscription was too expensive. Customers can then choose from another plan that is less expensive but includes ads.

Netflix follows the example of the competition: at Amazon, a launch in Germany is planned this year. Disney plans to do this initially in the United States and internationally next year. At Netflix, the ad variant is expected to debut in early 2023, tentatively in “a few markets,” according to Hastings. Apple alone has so far eluded this development. An ad-funded offer will be made by several providers in the medium term, according to Paramount Director Anger.

This marks the beginning of a new era in the broadcast market, which is being accelerated by inflation: broadcasting was originally launched as an ad-free model of classic TV, but in the future users will have to get used to advertising if they want to spend less money. Paramount plus in the US costs about ten dollars a month in the premium tariff, and the advertising tariff is only half of it. Industry experts calculate twelve minutes of advertising per hour in Germany, and up to twenty minutes is acceptable in the United States.

>> Read more: These three graphs show how they’re streaming around the world replace the TV

The plan could work: According to market researcher Kantar’s data, the number of streaming subscriptions per household in the US has gone from 3.1 at the beginning of 2021 to 4.8 recently — primarily driven by cheaper ad subscriptions. In Simon Kucher’s study, 53% of all global respondents who wanted to cancel their subscriptions stated that they would keep their service if it became cheaper through advertising.

However, the corresponding proportion in Germany is only 36 percent. The willingness to accept ads is less obvious than in almost any other country. “In Germany in particular, advertising in the live broadcast market does not become a panacea,” says partner Jäger.

Netflix Reinventing takes time

One thing is clear: reinventing Netflix will take time. In order to maintain customer loyalty, experts advise the service to publish new episodes more often on a weekly basis and not all episodes of the new season at once. “This strategy works because it keeps users on the platform for a longer period of time,” says the analyst at Forrester Proulx.

And streaming expert Riefler suggests that Netflix also offer an annual subscription to direct customers for the same reason. Competitors like Disney or Amazon have an annual plan at a discount.

In addition to advertising, Netflix is ​​trying to monetize games. Inspired by the worlds of Disney, Netflix focuses on so-called “experiences” in three cities, a mixture of a ghost train ride and a room escape game, where fans can get up close to the stars of the hit series Stranger Things.

Whether in the real world or on TV: the struggle will continue for most clients. For the foreseeable future, the streaming battle will be between Netflix and Disney plus, says analyst Proulx. “Wrestling is open as of today. Anyone can win it.”

more: Netflix before offering an advertising subscription – Microsoft needs to become a sales and technology partner

First issue: 07/20/2022, 03:18 AM.

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