What’s Next for Netflix as Basic Needs Cost More Now

TA boom in streaming video services, such as Netflix, Disney+ and Peacock, was triggered by the pandemic. Netflix added 54.6million subscribers between 2020 and 2021. This was six months after the global government had closed down, and many people were looking for entertainment at home. The company has lost 25 employees from its marketing team and is now trying to limit its unprecedented growth.

Netflix’s losses weren’t simply theirs to bear. In the aftermath of Netflix’s results, other streaming services have taken a hit—Disney, Paramount, and Warner Bros. All three streaming service providers, Discovery, also saw their stock prices drop. The same week that Netflix cut some of its marketing team, CNN+, the news service’s foray into streaming, shuttered.

It all raises the question: Was the pandemic peak streaming, and we’re now on a perpetual downward slope? On the heels of its April 19 letter to shareholders—where Netflix said it lost 200,000 subscribers instead of growing by millions as expected—the company lost $60 billion in market capitalization in just over a week. Netflix states that it anticipates losing two million additional subscribers in its second quarter of 2022.

“In 2020, people were locked at home and you couldn’t do anything but watch TV,” says Maria Rua Aguete, senior director of media and entertainment at London-based consultancy Omdia, which regularly analyzes the state of the streaming market. “It’s only natural to go down after a boom.”

As user demographics and costs of basic services continue to rise, the next question is: How will streaming services find their new norm?

YouTube and TikTok have a tough time with streaming.

It’s not just that pandemic viewing habits may be reverting. For one thing, viewers may be overwhelmed and exhausted by the plethora of services available, according to a Nielsen study—which found nearly half of users felt that way, even if they generally like the ability to watch streaming video.

“The number of video streaming services in the U.S. has reached a ceiling,” says Rua Aguete.

At the same time, there’s a potential generational shift.

“If there is a reckoning coming, it’s because all emerging data suggests millennials and Gen Z are not only less interested in streaming TV and film than the previous generation, they are also consuming more content on YouTube and TikTok,” says Andrew A. Rosen, founder of streaming service analyst PARQOR, and a former Viacom executive.

Consulting firm Deloitte noticed this problem in their 2022 digital media trends study. Ampere research shows that the youngest Netflix users in certain markets are expected to be aged between 24 and 44, instead of 18-24.

Living costs are rising

The possibility that Netflix will increase some account sharing restrictions could be especially detrimental to younger people, who may have become accustomed to sharing Netflix passwords. But it’s not just younger generations—cost of living increases are squeezing users of all ages.

“With gas and electricity bills going up massively, you almost worry about switching the TV on at all,” says Emma Heath, 52, of Northampton, England, who recently cancelled Netflix, along with her satellite TV. The U.S. has seen inflation rise to a record 40 years ago, while it is at its highest level in 30 years.

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

Netflix and other streaming services are seeing their prices rise as people struggle with rising fuel costs. In January, Netflix told U.S. consumers that its standard two-screen service would rise to $15.49—the second price increase in two years. Soon after, a similar rise was seen in the U.K. Kantar’s research found that almost four-fifths of all U.K. households intend to end their paid streaming video services.

All of these factors can make streaming services struggling to be noticed among the pack more troubling. Netflix rose to prominence by doing just that—with original hit shows like Orange is The New BlackIt is ad-free. Rosen claims that things have changed.

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

Netflix couldn’t be reached for comment.

What’s next for Netflix and streaming

Netflix has said it’s looking at an ad-supported tier that would cost less. “Think of us as quite open to offering even lower prices with advertising as a consumer choice,” Netflix co-founder Reed Hastings said on a conference call with analysts after the results were announced, though there was no formal indication in the shareholder’s letter that the company would be pursuing an ad-supported model.

It would follow in the steps of competitors, who offer similar pricing options for customers worried about their cash. 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 a half-price, ad-supported option.

Still, Rua Aguete doesn’t believe Netflix is losing its prominent place in the industry any time soon. Netflix’s subscriber gains in Asia-Pacific offset its losses in Europe, Canada and the United States. While the company’s first quarter results were disappointing, and may signal the tide turning, they weren’t necessarily terminal. “It’s challenging times,” says Rua Aguete. “Things are not fantastic around the world, but yes, there is still growth in some countries.”

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