Shares in streaming giant Netflix crashed by 36% after announcing that overall it had lost 200,000 subscribers during the first quarter.
This is the first time in more than a decade that the group has lost subscribers on a net basis.
The sense of disappointment has been compounded by management’s cautious outlook, forecasting a global paid subscriber loss of two million in the second quarter.
CONSUMERS FEELING THE PINCH
The Covid pandemic created a fertile environment for streaming companies to grow with individuals confined indoors.
Watching streamed services became emblematic of the pandemic. Netflix, Amazon Prime and the host of other streaming companies witnessed a burgeoning in their subscriber numbers.
Consumer priorities have changed given the emerging of rampant inflation for fuel and food. This has squeezed consumer finances, and forced individuals to reassess their priorities.
Many households have multiple screaming subscriptions and given their increasingly constrained finances will be tempted to cut back.
This places Netflix and the multitude of other streaming companies in a precarious position. Competition for subscribers remains intense at a time when the cost of content is escalating.
ESCALATION IN CONTENT COSTS
Recent research by Wells Fargo suggests the cost of admission for those entering the streaming wars will continue to escalate. For the nine largest media and technology companies it forecasts a 10% jump in costs in 2022 to $140.5 billion.
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ITV intends to invest £1.23 billion in programmes this year, and a further £1.3 billion next year as it launches its new ITVX platform
This is a modest outlay compared with Disney which is expected to spend $33 billion on content in its 2022 fiscal year. Netflix’s content spending is expected to jump 13% this year to $19 billion.
A NEW BUSINSESS MODEL
Moving forward Netflix is reacting by outlining planning potential changes to its business model.
One approach looks set to be to introduce a cheaper subscription tier that will include advertisements.
Another may be to restrict its best content to the top tier of subscribers. So, unless you pay the full price, there is a delay before you can watch the latest releases.
The company has also revealed plans to crack down on the sharing of subscriptions. However, if it is too severe it risks alienating subscribers entirely.
