What’s Next For Netflix As Basic Needs Cost More Now

Jhe pandemic has sparked a boom in video streaming services like Netflix, Disney+ and Peacock. In 2020 and 2021, Netflix added 54.6 million subscribers, many of them in the scary, self-isolating six months after the world went into lockdown and people sought entertainment from the safety of their homes. Now, this wave of unprecedented growth may be reaching its limits, as the company lost subscribers for the first time in its history, cut about 25 people of its marketing team and began testing ways to crack down on password sharing.

Netflix’s losses weren’t just their responsibility. In the aftermath of Netflix’s results, other streaming services took a hit – Disney, Paramount and Warner Bros. Discovery, all of which run streaming services, also saw their share price drop. The same week that Netflix cut part of its marketing team, CNN+, the news service’s foray into streaming, shut down.

All of this begs the question: Was the peak of the pandemic continuous, and we are now on a perpetual downward slope? Following its April 19 letter to shareholders – where Netflix said it lost 200,000 subscribers instead of growing by the millions as expected – the company lost $60 billion of market capitalization in just over a week. Netflix says it already expects to lose another two million subscribers in the second quarter of 2022.

“In 2020, people were locked up in their homes and you couldn’t do anything but watch TV,” says Maria Rua Aguete, senior director of media and entertainment at London consultancy Omdia, which regularly analyzes the condition. of the streaming market. “It’s natural to fall after a boom.”

So the next question is how will streaming services find their new normal, as user demographics change and the cost of basic needs continues to rise.

Streaming competes with YouTube and TikTok

It’s not just that pandemic viewing habits can return. On the one hand, viewers can be overwhelmed and exhausted by the plethora of services available, according to research by Nielsen, which found nearly half of users felt that way, although they generally like the ability to watch streaming video.

“The number of video streaming services in the United States has reached a ceiling,” explains Rua Aguete.

At the same time, there is a potential generational shift.

“If there’s a reckoning ahead, it’s because all the emerging data suggests that Millennials and Gen Z are not only less interested in streaming TV and movies than the previous generation, but they also consume more content on YouTube and TikTok,” says Andrew A. Rosen. , founder of streaming services analyst PARQOR and former Viacom executive.

This issue has also been noticed by consulting firm Deloitte, in its 2022 Digital Media Trends Survey. And for the first time, Netflix’s most avid users are likely to be 24 to 44 year olds in some marketsrather than 18 to 24 year olds, according to research firm Ampere.

The cost of living is rising

If Netflix expands some of its account sharing restrictions, it could be especially difficult for young people who are used to sharing Netflix passwords. But it’s not just the younger generations: increases in the cost of living are squeezing users of all ages.

“With gas and electricity bills soaring massively, you almost worry about turning on the TV,” says Emma Heath, 52, from Northampton, England, who recently canceled Netflix, along with her satellite TV . Inflation in the United States has peaked in 40 yearswhile the United Kingdom is not doing much better, with inflation at one 30 year peak.

Rua Aguete says: “Inflation is rising, the cost of living is rising. If in 2020 we took six or seven services, do we all need them now? »

As consumers grapple with higher costs for basics like food and fuel, services like Netflix are driving up prices. In January, Netflix announced to US consumers that its standard two-screen service would drop to $15.49. second price increase in two years. A similar increase in the UK followed soon after. Almost four in 10 UK households say they plan to cancel a paid streaming video service, according to search by Kantar.

These factors can add up to troubling news for streaming services trying to stand out among the crowd. Netflix has risen to prominence doing just that – with original hit shows like Orange is the new black, delivered without advertising. But now, says Rosen, the landscape has changed.

“To date, Netflix has driven a narrative tightly built around a subscription-only model and the goal of ‘we want to entertain the world,’” Rosen says. “Until the past two quarters, it has defied market concerns for its billions in debt that has funded content spending to pursue this goal.”

Netflix could not be reached for comment.

What’s next for Netflix and streaming

Netflix said it was considering an ad-supported tier that would cost less. “Consider us completely open to offering even lower prices with advertising as a consumer choice,” Netflix co-founder Reed Hastings said in a conference call with analysts after the announcement. results, although there was no formal indication in the shareholder letter that the company would pursue an ad-supported model.

Should it decide to do so, Netflix would be following in the footsteps of many competitors who have introduced similar lower prices for money-conscious consumers. It’s not all bad news either: According to Omdia’s analysis, Hulu and Peacock have each managed to increase and maintain their average revenue per user by introducing an ad-supported half-price option.

Still, Rua Aguete doesn’t think Netflix is ​​losing its prominent place in the industry anytime soon. In the Asia-Pacific region, Netflix recorded subscriber gains that helped offset losses in the United States, Canada and Europe. While the company’s first quarter results were disappointing and may signal a turning point, they weren’t necessarily terminal. “It’s a difficult time,” said Rua Aguete. “Things are not fantastic in the world, but yes, there is still growth in some countries.”

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