Reed Hastings, president of the group, expects 2 million defections during the current quarter.
the end of the world. For the first time in 10 years, Netflix is losing subscribers from a quarter to the previous. Admittedly, the drop of 200,000 users paying for a total of 221.6 million paying subscribers. But it’s shocking because Netflix predicted a gain of 2.5 million.
Reed Hastings, founder of the leading video-on-demand company, realizes that something fundamental needs to change in Netflix’s model, as it suddenly sees two million defections in the current quarter. Wall Street is upset: The price of Netflix in over-the-counter markets, after the Nasdaq closed Tuesday evening, fell 25%. This results in a stock price crash of more than 42% since the beginning of the year.
option with advertising
Netflix intends to raise the bar. For this, the company is preparing for a 180-degree turn with the launch of a service peppered with advertisements. “Those who follow Netflix know that I have always been against the complexity of ads and have always been a big fan of simplicity. But I’m a big fan of expanding consumer choices.Reed Hastings explains in his letter to shareholders. However, the transformation will take some time: the Netflix option with ads could be introduced in a year or two.
The management of Los Gatos (California) tacitly admits that its beautiful years of strong growth have passed. But its global empire was built precisely on the lack of advertising that distinguished its service from that of cable TV channels (except for “premium” channels like HBO or Showtime). Which part of its customers will accept backtracking?
Now operating in an extremely crowded competitive environment with the proliferation of rival “streaming” platforms, from Disney+, to HBO Max, across Amazon Prime Video, Peacock and Apple TV, Netflix must struggle to combat the erosion it wasn’t expecting. .
We note that Disney+ also relies on a version of its service that includes ads. Hulu, a Disney-controlled platform, has offered this option for years. Bob Chuck, also the head of the Hollywood giant, realized that without advertising revenue, he could not achieve subscriber growth goals and hope for eventually profitability.
100 million families watch Netflix without paying
The reasons for the end of Netflix’s growth are multiple. The frenzy of flow during the months of lockdown obscured the fundamental trends. Getting out of the pandemic highlights them. Reed Hastings thinks he’s analyzed it well. The first problem, completely unexpected, is, of course, the disappearance of 700,000 subscribers in Russia, due to which the embargo decided to punish the invasion of Ukraine.
The second problem, which is likely to be more permanent: the illegal sharing of subscription codes among Internet users. 100 million families watch Netflix without paying! About a third of them are in the United States and Canada. Netflix has always known that sharing passwords costs money. But the company did not fight this phenomenon seriously because its growth seemed assured. Everything changes today: Netflix is committed to fighting this fraud which is clearly slowing the growth of the number of paying subscribers.
In addition to these two reasons, Netflix identifies other reasons for its poor performance. Strong competition from other services, of course, is the crux of the problem. Internet users do not have an unlimited budget. They have to make their own choices. To get around this hurdle, Netflix promises to use more of what has been its strength for years: a huge budget for production or content acquisition that crushes the competition. This year, Netflix is likely to spend more than $20 billion for this, hoping to air a global hit series like “The Crown” or “Stranger Things.”
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