What Neflix’s Drop in Subscribers Means for Streaming
There was once a time when Netflix dominated the category of streaming so strongly that it became synonymous with the activity itself. But the monopoly that Netflix once held is fading. Platforms like Apple TV, HBO Max, Disney +, Crave and Amazon Prime are competing for viewers. Netflix reported a loss of 200,000 subscribers in the first quarter of 2022, a contrast to the more than 2 million subscribers it predicted to add. It’s the first time in a decade that the company reported a loss in paid users. That announcement, in April, led to a 35 per cent drop in stock prices.
As Netflix’s growth slowed, HBO said it added nearly 13 million subscribers in 2021 across HBO and HBO Max. In May, Disney reported it added 7.9 million subscribers in its second quarter, and Apple TV said it boosted new viewers by 25 per cent in March after the film CODA—which streams on the platform—won an Oscar.
Netflix attributed its slowdown due to a variety of factors in a letter to shareholders, including account sharing—meaning one paying customer gives their password to others—disruption caused by the pandemic and increased competition from rival streamers. “As traditional entertainment companies realized streaming is the future, many new streaming services have also launched,” the company said.
“Given the expansion of other streaming options, the default of Netflix being the thing that we do to ‘chill’ is coming to an end,” says Paul Moore, a sociology professor at Toronto Metropolitan University who specializes in media history.
So will Netflix recover? And what does its decline mean for the streaming industry as a whole?
The problem with streaming services
The start of the pandemic was prime time for streaming services, as easy-to-binge entertainment was much-needed escapism during lockdowns (remember the Tiger King phase of Covid?). Netflix has 222 million subscribers globally, and in the U.S. and Canada, 75 million out of a total of 142 million households have a subscription to the platform, The Guardian reports. (Netflix says password sharing accounts for 30 million additional households in North America.) But as lockdowns lifted and people returned to in-person activities in 2021, people’s viewing habits shifted. Pair this with increased competition over the last several years, and the landscape Netflix once dominated has changed.
A 2021 survey by Verizon Media and Publicis Media found that 56 per cent of streaming consumers are overwhelmed by the number of services to choose from. An article published in The Conversation argued that the more subscription services available, the more money people will need to fork over to watch a desired movie or TV show that’s suddenly only available on one platform. The possible outcome? A return to illegal streaming, or piracy.
Plus, the more platforms to choose from and pay for, the more likely password sharing will continue to happen. Moore describes the common case of an extended family where each household subscribes to a different service, but shares logins with each other. This is especially true with post-pandemic life returning; someone piggybacking on a family member’s or friend’s login might not see the benefit of getting their own subscription. To make up for lost revenue, Netflix is planning to crack down on password sharing in the next year, charging primary account-holders a fee for each secondary login. Currently, four logins are permitted for a premium account and two logins for a standard account.
Some experts posit it’s the decline in quality of original content on the platform that’s to blame. In July, Wired said Netflix is losing its cool thanks to competitors that were putting out buzz-worthy programming (think Apple TV’s Ted Lasso or WandaVision on Disney +). In the first quarter of 2021, Netflix content accounted for about 50 per cent of the original series people around the world wanted to watch online, according to data from audience engagement start-up Parrot Analytics—a stat down from 65 per cent two years earlier. It’s even dropping potentially buzzy titles amid subscriber woes: In May, Netflix cancelled Meghan Markle’s animated series, Pearl, as part of its “strategic decisions” around animated series.
On Esquire’s list of the best 18 TV shows in 2022 so far, only a few are Netflix series. “The buzz around Netflix has hit a plateau,” says Moore. Other streaming platforms could meet a similar fate, prompting executives to take action early. Preparing for tight competition, Amazon recently bought MGM studio, the maker behind classics like James Bond, in an effort to draw more consumers.
How streamers can compete
According to Deloitte’s media trends 2021 report, streaming services spend around US $200 per year on marketing to acquire a single subscriber. That means they must “draw monthly subscription rates from a new subscriber for up to 15 months, depending on the subscription tier and cost” to recoup the advertising spend. In other words, platforms need to get people to stick around to turn a profit.
Sam Maglio, an associate professor of marketing and psychology at the University of Toronto Scarborough campus, believes that streaming services may change what types of new productions they invest in. “There could be really great programming coming down the pipeline because that seems like one tractable way for these companies to attract new subscribers,” Maglio says. We may see less “background TV” programming being made, in favour of award-winning productions.
Service bundling may also become more commonly offered by telecommunications providers. Last month, Telus announced the launch of Stream+, which bundles Netflix Premium (which allows four screens to view at a time, compared to the standard subscription of one screen), Apple TV+ and discovery+ for $25 per month. The Verizon Media and Publicis Media survey found that consumers who use streaming platforms access five services on average—which can add up: Nearly half of respondents said they are worried about how much money streaming services are costing them.
Maglio believes bundling could be what helps offset price increases from individual providers. “It’s the same idea as buying a value meal from McDonald’s, where you don’t think about how much you would pay for every item individually,” he explains, adding that consumers don’t like to think about what an individual service costs, and are more likely to pay one price for a package that seems like a good deal. “You’re buying the overall bundle, and if it’s offered at a discount, all the better.”
Another way that Maglio sees services retaining customers is, interestingly, counter to the bundle concept: An à la carte model, similar to what Prime Video offers, could become more popular where subscribers can pay for the content they actually watch, rather than everything that’s available. “Would there be room for some sort of customization within an individual streaming service?” he wonders. “It costs a lot of money to make something like The Power of the Dog, but if you want to just have Arrested Development, Seinfeld and The Office at your fingertips, then users could pay a lower rate for ‘background TV’ or comfortable favourites.”
Cost increases are another avenue for streaming services to maintain profitability. In January 2022, Netflix increased their standard plan by $1.50, while the premium plan went up by $2. In May, Disney hinted a price increase may be coming. But hiking prices for customers is likely to only increase the password-sharing problem. “If I were in charge of a marketing department, I would want to focus group and workshop that decision very carefully before I made any decisions that would make customers angry enough to stop subscribing altogether,” Moore says.
“The thing that all of these services are going to have to be really careful about is making the cost too high for the value. We are clearly in a moment of incredible flux.”