Is Netflix in crisis? During reading this piece, you may as well be planning what to stream this weekend on Netflix. The company that introduced us to the world of streaming and became a part of our entertainment culture is facing fierce competition against its counterparts. But a rigour competition shouldn’t be ample to denote the current situation of the tech giant as a crisis. Let’s take a panoramic view to see what’s happening inside Netflix.
Netflix, which provides an online subscription service for TV series and movies as well as Netflix originals via streaming the media online, has always maintained its name in the spotlight due to its user-friendly business approach and subsequent global success.
Recent Netflix share plunge
In March of 2022, Netflix fell 35%, knocking away $50 billion in market value along with a loss of many subscribers. To make things worse, consumers who cancel Netflix typically switch to a competitor provider. Market analysts predicted this higher plunge resulted from Netflix charging more than most of its streaming rivals.
Netflix has added an average of 27 million users yearly since 2016 and had its greatest run in 2020. Sign-ups surged in the year’s first half, but business declined in the second half and remained sluggish through most of 2021.
Consequently, the inquiry that naturally follows is, ‘What Actually Happened?’ and ‘What Factors Contribute to a Situation Like This?’
Basically, there are a number of reasons for it. The co-CEO and chief content officer for Netflix, Ted Sarandos and co-CEO Reed Hastings cited numerous issues, including greater competition, a slowed uptake of linked TVs, and an exit from Russia after the invasion of Ukraine, while seeking to convince investors that the suffering was short-term.
From a DVD rental to a Streaming service
It has been a long path of trial and error, luck, and excellent timing. In 1997, Marc Randolph, the co-founder and first CEO of Netflix and Reed, strolled into Logos Books & Records in Santa Cruz, purchased Patsy Cline’s greatest hits CD, and sent it to Reed’s residence a few streets away. They realized they had discovered their ticket to e-commerce fame when the CD came undamaged.
On August 29, 1997, Netflix was registered and established with $1.9 million from Reed Hastings. Other investors supplied this money. Reed Hastings, 37, became Chairman with 70% ownership, and Marc Randolph, 39, the CEO and minority owner.
To keep going in business
In 2011, Netflix separated its streaming and DVD rental businesses into two subscription packages: Netflix for streaming and Qwikster for DVD rentals. However, Reed changed the decision when 800,000 Netflix customers left.
Netflix had 209 million customers in 190 countries in 2021. North Korea, Syria, China, and Iran are outliers. It has more than 15,000 titles across all its foreign libraries and nearly $25 billion in yearly sales. The business added mobile games to Netflix. Netflix is actively generating original content for local consumers.
Netflix is putting significant effort into developing unique content for regional markets. Dorothy Ghettuba, in charge of African Programming, claims that going to Hollywood is no longer required.
With Netflix, anybody can become a local celebrity while simultaneously sharing their work with the rest of the globe. Netflix has seen an increase in the number of services competing with it throughout its history.
These services include Disney+, Hulu, ESPN+, Prime Video, HBO Max, and YouTube TV. These rivals spend a significant amount of money on various techniques to amuse their audiences. It is essential to be open and accepting of new and developing technology to maintain a lead over the competition.
Late 2019 and early 2020 saw rival media companies like Disney+, HBO Max, and Paramount+ start to offer their own streaming services. Most of them were cheaper than Netflix and had dozens of original shows, as well as large libraries of movies and TV shows that had been built up over the years. Oppositely, Netflix has always tried to be user-friendly and free, so their services have always been a little different from those of other platforms.
Overcoming strategy from the recent plunge
Now turning our attention to the most recent drop, it is important to note that the overall decline in share price has not had a singular impact on the company’s operations.
The company is working around the clock to come up with innovative solutions to the problems caused by recent occurrences. There are two primary business strategies that Netflix is prepared to implement, both of which will be highly novel for the company. But their credibility for the industry, in the long run, is skeptical.
Wall Street analysts, colleagues, and journalists pushed Hastings to introduce advertisements on Netflix. Almost every major media company in the contemporary era has generated revenue by featuring ads on the platforms.
Since the 1940s, networks have shown advertising. Several of Hasting’s workers believed Netflix should do the same. But Hastings always refused, stating people preferred Netflix over cable since it did not have advertisements.
He also did not care much about personal information, like whether one liked thrillers or soap operas. Most of all, he did not want to compete with Google and Facebook, where he had once been on the board. He would have rather worked on getting more subscribers, which had started to decrease ironically.
No more ‘No Ad’ policy
By 2021, the figures could not be ignored, and management sought a response. In March, the CFO, Neumann, floated a trial balloon at an investor conference. Netflix was not religious about advertising, he added, saying, ‘Never say never.’ A month later, Hastings made the transfer official when the stock sank.
Interestingly, Netflix will experiment with ads in the next year or two. The statement surprised most of his staff, particularly old-timers who considered a lack of advertising vital to the company’s objective. When Hastings decided to go for it, Netflix wasted no time. After 25 years without ads, it will create one in seven months.
Netflix’s objective is to make adverts as inconspicuous as possible. No one paying for the service will see ads until they downgrade. Ad-supported version costs less than the current plan.
The lesser version will include four minutes of ads every hour, fewer than conventional TV but equivalent to streaming providers. It will not display ads in kids’ shows or new movies initially. It will restrict viewer data to location, programming choices, and the duration of times they may see the same ad.
By reducing commercials, Netflix expects to raise ad costs. The corporation is asking for more than $60 per thousand viewers, roughly twice the market cost.
Password sharing will not be an option
Another initiative to recover is to limit the password-sharing option. Password sharing has hard-to-measure effects. As the number of moochers swelled to the size of a large nation by 2019, Netflix started investigating remedies.
Netflix is investigating two strategies to combat the issue in Latin America, where password sharing is common. Chileans, Costa Ricans, and Peruvians must spend $2 to add two more users. Five Latin American nations charge $2 or $3 to use a Netflix subscription in a second house.
The corporation has to settle on a strategy by next year. Many are in fear of losing access. Others think Netflix is being greedy. No one has tried to prohibit password sharing this broadly. Netflix has sought to depict the move as charging for the practice, not cracking down. If it were simple, Neumann would not test so often.
Wall Street has historically assessed Netflix by quarterly customer growth. They also perceived Netflix as a successful technological firm for years, not a huge media giant like Walt Disney or Paramount.
When Hastings and Sarandos borrowed to outspend the competition, investors cheered. However, the corporation spent more than it made. Investors see a mature company that must compete with lower-priced items.
The question remains whether streaming is a viable business now. Netflix has had to lay off hundreds of workers and vacate office space. It has also reduced spending on programming and scrapped hundreds of film and TV projects.
This future has yet to be revealed
Netflix is responsible for eight of the top ten most popular streaming television programs in the United States, as well as the top ten most popular streaming movies.
Many of the issues it now faces are directly attributable to its size. Now, the real challenge is to see how well these new plans work.
If they succeed, they will not only stop losing subscribers but also become more popular everywhere and get a lot more than they thought they would.
Author- Sumiya Rahman