The future of Netflix: Is it really as doom and gloom as people are saying?
There have been many Netflix naysayers doubting the streaming giant’s ability to survive and thrive in the midst of new streaming services flooding the market. Two or three might be company, but more than that is a crowd. Or, is it?
Yes, it is true, Netflix is facing some very steep competition with new powerhouses, such as Disney+ and Apple TV, soon to enter the arena. Before assuming this is the end of the Netflix we know and love, let us not forget who got us all hooked on streaming and binge-watching in the first place. As the leader of the pack, Netflix might just have more in its back pocket than it’s being given credit for.
It’s also true that Netflix is losing some of its most-watched content. In 2018, its top two most-streamed shows in the U.S. were Friends and The Office, both of which are being pulled for Warner Media’s HBO Max in 2020 and NBCUniversal’s service in 2021, respectively. Despite this, according to analysts, Netflix has the goods and brand strength to withstand the onslaught of new streamers, but the company may need to make some adjustments.
Imitation Is The Sincerest Form Of Flattery – Charles Caleb Colton
For years, Netflix has been preparing for the influx of competition. Hey, when you’ve got something good, others naturally want to follow. The streamer also realized that eventually, when this happened, media conglomerates would pull their top titles. This is why, in 2018, Netflix spent $12 billion building its library of original films and series, an 88% uptick from 2017. And, spend on original content this year is expected to reach $15 billion. The strategy was to backfill its library with original content to gain and retain subscribers.
Original content is king and Netflix didn’t just figure this out. The streaming giant’s two top originals, Stranger Things and Black Mirror, are subscriber magnets. An approximate 13% of ex-Netflix users signed up again to watch the third season of Stranger Things. Recently, Netflix boasted in a tweet that 40.7 million accounts had watched Stranger Things 3 since its debut July 4. And, roughly 51% of subscribers say they plan to watch the new season.
It appears the plan to create its own hits worked. Netflix currently touts over 148 million memberships in 190-plus countries and stands as the leader in streaming. While some still believe the company’s strategy is flawed, others feel Netflix will be just fine. Below are a few reasons analysts think Netflix will weather the storm, as well as a few suggestions the streamer should consider moving forward. You be the judge.
Netflix Subscribers Are Very Loyal To The Brand
Analyst at eMarketer, Ross Benes, says Netflix has brand awareness on its side. “Disney and others will have a marketing blitz, but the person who doesn’t work in media and marketing is probably not aware of all the streaming services that will be launching soon. The media companies behind new streaming services are going to promote their new products heavily to get them in consumers’ minds and habits, but the fact that everyone already knows what Netflix is, will be a huge plus for Netflix.”
Benes also sees the Disney-Netflix dichotomy as misleading. “There will be more competition when Disney and others enter the market, but I don’t expect that these video streaming entrants are going to solely rely on getting people to cancel their Netflix accounts. Instead, companies like Disney will need to convince consumers that they need more streaming packages. I suspect many Disney+ users will retain their Netflix accounts.”
SVP of Research, Global Media and Entertainment at Magid, Andrew Hare, adds how loyal Netflix subscribers are. “Netflix is the one video service subscribers say they would not get rid of by a wide margin. The +22% video power score (least willing to give up minus most willing) far outpaces the next popular services: YouTube +2% and Cable TV 2%. Netflix holds a unique, differentiated place in the ecosystem today.” He does, however, wonder how much longer this will last.
Netflix Is Easy To Use
Hare explains it’s important to remember Netflix has become best-in-class not simply through content but by setting the bar of expectation for streaming video technology. “The ease of use and reliability of the service are the top attributes Netflix subscribers are most satisfied with in SVOD today.”
Netflix isn’t just a video content company, according to Benes. “I also think of them as a tech company. One reason they became so popular is they make it so easy for people to stream. They’ve been pioneers in video compression, cross-device synching, making video available on every platform easily, making content downloadable and viewable offline, having a lack of buffering, serving personalized messages for recommendations and knowing when to skip credits and introductions, as well as begin the next episode immediately. These things are not groundbreaking in 2019, but Netflix has been an innovator in all these video technologies and they adopted so many features before other platforms did. It’s not guaranteed that upcoming video services are going to have that ease of use immediately.”
All Things Considered…
Netflix, however, does need to rethink a few things and change with the coming tide. “Netflix is the master of innovation, technology and spin,” says Stephan Paternot, co-founder and CEO of online film finance marketplace Slated. “They’re going to be able to weather the coming storm, but it’s not going to be pretty. Their subscriber growth is almost certainly going to be affected by the competitive services that come online over the next couple of years and that’s going to result in a heavy drag on their stock price and the cost of the debt they’ve accrued.”
Hare concurs the impact of Disney+ and others into the market will most certainly have a subscriber effect on Netflix. “While we believe the loyalty and primacy of the platform will shield Netflix from dramatic near-term losses, we also believe 9% of Netflix subscribers could be in danger of churning (at least temporarily) as a direct response to new players entering the market. This likely means Netflix needs a combination of subscriber growth and/or revenue growth. New competition could be the move that sets Netflix on the path towards new monetization models, including introducing advertising or higher service fees. Certainly, the loss of back catalog from the likes of Disney and NBCU in the coming years will give Netflix more reason than ever to continue aggressive development and acquisition.”
According to Paternot, though the company is in some hot water, this isn’t doomsday for Netflix. He credits the company for completely disrupting and reinventing how consumers consume content. “I do not believe it’s at all the end of days for Netflix, they’re just not years ahead of the competitive curve anymore. Netflix will be one of the five or so streaming services that make it through this period. But I do believe it’s the beginning of them going full-circle from a brash Silicon Valley start-up that’s out-spending everybody to a company that’s about quality over quantity. You can’t outspend everyone forever. You eventually have to pick and choose and be smart about it.”
Subscriber growth is the name of the game. Winning over new subscribers while keeping the ones you have is a must for all streamers. The average consumer spends up to four hours a day bingeing. So, now the pressure is on for all platforms to provide at least four hours of original content 365 days a year that appeals to all subscribers. How do you attract new eyeballs to your service?
To Have Ads, Or Not To Have Ads? That Is The Question.
Netflix has so far had an ardent stance on avoiding advertisements but Paternot thinks they should rethink this. “I think Netflix should experiment with having a free ad supported tier. I think it would blow up the rate of on-boarding customers. They need an ultimate on-boarding system for the masses, which would be a free-to-join, ad-supported service with commercials. And, they should have an up-sell service without commercials that is so damn good that everyone will upgrade.”
He does, however, understand the concern Netflix has with ads. “Nobody loves commercials and nowadays no one trusts a service when their personal information is being used, which happens with ads. But, if you look at Spotify, they have a 50% conversion rate to their paid service. You get people hooked with the free entry and then up-sell them with an amazing paid service.”
Cost: How High Is Too High?
When it comes to subscription cost, there is a breaking point as to how high Netflix can take their prices, as well as a limit to how long the company can keep them down. There’s also the issue of how many services people are willing to pay for and Paternot says the answer is three. “We are still in the early days, with most people willing to pay between $12-16 a month per service for a few services, but there’s room to move upward. When cable was the only option, people were used to spending between $80-100 a month for linear programming. Then, people gave this up to pay for three streaming sites, roughly only $45 a month. So, I think the truth is that people would likely be willing to double their subscription spend before hitting a ceiling.”
He adds though institutional lenders are still subsidizing Netflix’s content spend at low interest, that free, unlimited spending will go away and when it does, streamers will need to cover costs with other means. “That’s when the big players will need to ramp up subscription fees to make up costs, or supplement with a free ad-supported tier.”
Paternot has said for a while now that he believes the future of the entertainment industry as a whole will be subscription-based. And, in fact, this is happening. In an effort to keep up with the times, movie theaters are even caught up in the war against streaming platforms. Their goal is to get people off the couch and into the theater and their battle plan is to be more like Netflix.
AMC, the largest cinema chain in the U.S., announced in late June 2018 that it was joining the subscription model with its app AMC Stubs A-List. This $20-per-month subscription service has already reached 860,000 members.
How will things play out for Netflix? The company has managed to weather and conquer many a storm, so don’t be surprised if this is the case moving forward.
View the original post on Forbes.