With a loss of subscribers for the first time in more than a decade, Netflix faces a new challenge due to stagnation, despite its dominant position.
A drop of just 200,000 users – less than 0.1% of its total subscriber base – was enough to send Wall Street into a panic, where its shares lost more than 30% on Wednesday.
The decrease in subscribers and the company’s various plans to revive the business “change the traditionally simple story” of Netflix’s solid success, according to Wells Fargo analysts, who cut the company’s target value in half.
“The new perspective is as clear as mud,” the experts said.
If in the first quarter the loss of users seems minor at first glance, Netflix considers the opposite: the company anticipates a net drop in the second quarter of about 2 million subscribers.
“I’m not sure if that’s a turning point” for Netflix, said Scott Zari of S&P Global Ratings. “But I think it’s an indication that it’s a new phase of slower growth.”
For their part, Bank of America analysts said in a note that Netflix “made it clear that what we can expect is very low user growth in ’22 and ’23 with no room for expansion.”
The change was even felt in the tone the company used in its earnings presentation on Tuesday.
The topic focused less on the platform’s mega-hits like “Bridgerton” or “Ozark” and more on battling the 100 million households that watch Netflix for free thanks to shared accounts.
“When we were growing rapidly, this was not the highest priority to focus work on,” platform co-founder Reed Hastings admitted. “And now we’re working really hard on that.”
The company’s chief operating officer, Gregory Peters, said Netflix was not looking to end account sharing but said “we’re going to ask you to pay a little bit more for account sharing.”
According to Zari, “future growth will depend on how much” Netflix can “monetize those households.”
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Advertising on the way
To attract more audiences, Netflix is preparing cheaper subscriptions with advertising, which it hopes to launch in the next two years.
The Los Gatos, California-based company has long championed its ad-free model, which has set it apart from competitors like Disney+, HBO Max, and Apple.
For Jeff Wlodarczak, an analyst at Pivotal, streaming video platforms “seem to have almost completely penetrated the entire world after COVID-19” and companies must now set their goals to convert pirates into subscribers, gaining a larger share of the market. and rising prices.
This would not help Netflix in the short term, which nevertheless raised its rates in January to the point that it is now the most expensive of these services.
“I think they need to adjust their business model,” said New York University professor Paul Hardart, including “on the cost side, investing in content.”
In his turn, Joel Mier, a professor at the University of Richmond, thinks that Netflix’s price increases and the elimination of shared accounts are “peripheral but significant” short-term solutions, while the long-range strategy remains “investing in creating local content and establishing their presence in games.
With 221 million subscribers, “Netflix is by far the market leader in the streaming space,” says Zari.
“They are way ahead, particularly in the world market,” Hardart added. “I think this will give them a lot of advantages.” However, the problem Netflix is facing is “not good news” for the company.
But, as a global leader, whatever Netflix has to deal with is likely to affect its competitors as well.
This is “perhaps the worst news for the other services that are starting to build themselves,” the expert said.
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