The Beginning of the End for Netflix?

When Netflix recently announced its quarterly growth figures, most analysts would have expected the status quo to continue – that being a further increase of several million subscribers following the previous quarter. The reality, however, was rather different.

To everybody’s surprise, it was instead announced that Netflix had experienced a net loss in subscribers for the first time in ten years – losing more than 200,000 in the first three months of this year and wiping more than £40 Billion off the value of the company in the process.

This decline can in part be explained by the decision to suspend more than 700,000 accounts in Russia, without which a continued net growth in subscriptions would have occurred, but Netflix still anticipates a further loss of several million subscribers throughout the rest of 2022.

But why is this the case?

Trajectory Optimism Index

The cost of living crisis is an obvious place to start.

With the cost of everyday spending increasing at such an unprecedented pace, consumers are being forced to make cutbacks – with media subscriptions likely being one of the first casualties. Since the turn of the year, net expectations for spending in this area have fallen from -15% to -30%, according to our Optimism Index data.

The platform is also still suffering from logistical issues caused by the pandemic – to the detriment of its subscribers. Analysis indicates that the number of Netflix originals released in the first quarter of last year was down 12% compared to quarter one of 2020.

With Netflix also discussing the removal of account sharing options for certain lower tier packages and regularly increasing the cost of their subscriptions, it is little wonder that the appeal of the service has fallen to the wayside as the degree of competition has increased substantially.

Netflix are already considering a change in their business model to try and regain interest amongst thrift-conscious consumers.

CEO Reed Hastings recently announced that they are set to introduce a subscription which includes advertisements but at a cheaper price than current offerings.

However, with the main appeal of streaming services being the provision of an ad-free experience in contrast to traditional Television, it seems unlikely that any offerings from Netflix that include adverts would gain mainstream appeal, even if offered at a lower price.

Rather than choose a paid subscription that includes adverts, many consumers may simply choose to watch a greater amount of traditional TV offerings. Whilst the majority of channels include advert breaks, the lack of a monthly subscription to watch the content offers appeal for households facing further squeeze.

Once the shiny new toy in the TV space, Netflix is now swamped with competition and facing declining subscribers for the first time in a decade. As consumers focus on thrift, the rising cost of its subscriptions, reduced numbers of originals and removal of features such as account sharing will do no favours for those considering cancelling their subscription in the months ahead.

Streaming remains the future of television. But Netflix may not necessarily be the name we all think of in years to come.