Online streaming giant Netflix encounters a tough struggle to maintain its clientele base as it lost almost a million subscribers between April and July, as more people decided to quit the service.
Netflix has now lost members for two quarters in a row although the drop was smaller than anticipated.
The firm’s boss, Reed Hastings, when asked what slowed the exodus, said, “If there was a single thing, we might say ‘Stranger Things.'”
The new season of the hit drama has been a phenomenal success and may have helped stem the exodus of Netflix customers.
Rivals are challenging its dominance, and viewers are switching off Netflix. Furthermore, young people are cutting back on video streaming services. Price hikes are partially responsible for this development, and Netflix and Microsoft are teaming up to provide cheaper service.
The company reported its first subscriber loss since 2011 in April, news that was followed by hundreds of job cuts and a sharp drop in its share price.
Subscriber losses reported on Tuesday were the biggest in the firm’s history with the US and Canada seeing the highest number of cancellations in the past three months followed by Europe.
The executive director at Ampere Analysis, Guy Bisson, said it was “inevitable” that Netflix would start to see its grip on the market loosen.
“When you’re the leader, there’s only one direction to go, especially when a large amount of competition launches, which is what Netflix has seen in the last couple of years,” he added.
It is a stark change for Netflix, which enjoyed years of seemingly unstoppable growth, as it revolutionized the way people around the world consumed entertainment.
Its position as a global giant was cemented when the pandemic hit in 2020 and people, stuck at home with few other options for entertainment, flocked to monster hits like Squid Game and The Crown.
But as pre-pandemic habits return, Netflix has struggled to attract new sign-ups and maintain the loyalty of existing members, especially as the rising cost of living leads to people cutting back.
Netflix losing subscribers due to hikes in prices
In the US, a standard plan which allows people in the same home to watch on two devices simultaneously now costs $15.49, up from $14 in January and just $11 in 2019 and in the UK, basic and standard plans have both increased since January by £1 a month to £6.99 and £10.99 respectively.
Recent surveys suggest that Netflix is managing to lure back a higher share of deserters than its rivals. Many households also continue to identify it as the streaming option they would retain if forced to have only one.
Mr. Bisson said, “At some point, yes, they’re going to reach a threshold where a significant number of people say enough is enough, because of the additional choice…price hikes are a more risky strategy.”
With Netflix’s long accustomed posting of double-digit growth grappling with its most serious slowdown in years, revenue in the April to June quarter of $7.9bn was up just 8.6 percent year-on-year.
“Netflix’s subscriber loss was expected but it remains a sore point for a company that is wholly dependent on subscription revenue from consumers,” said Insider Intelligence analyst Ross Benes.
“Netflix is still the leader in video streaming but unless it finds more franchises that resonate widely, it will eventually struggle to stay ahead of competitors that are after its crown,” Ross added.
Netflix broadcast content a factor to consider
In the US, new sign-ups on Netflix are coming from an increasingly older crowd with different tastes than the younger viewers who were early streaming converts.
“They’re increasingly competing for that generalist audience, so the breadth of content that is needed becomes much wider and that’s why I think people are saying ‘there’s now a lot of stuff I don’t like,” Mr. Bisson said. “It’s a very big challenge.”
Netflix needs “more frequent hits,” said Eric Steinberg of Whip Media, adding that Netflix also has room to experiment with staggering its releases to keep a hold on its subscribers.
The streaming giant has already taken steps in that direction by releasing episodes of the fourth season of Stranger Things in two batches this year, but the “pressure is on” he said.
Mr. Bisson added, “In an inflationary environment like the one we’re in and also great programming [at the competition], people are going to re-evaluate how much they’re willing to pay…they don’t have the sandpit to themselves anymore,”
Netflix is currently facing stiff competition from the likes of Apple TV, HBO Max, Amazon Prime, and Disney+, and its move to make its service more expensive has also put off some customers.