All eyes on Netflix as it pivots to survive saturated streaming market
As Netflix shares plummet and its position as leader of the streaming services pack starts to falter, a QUT media scholar said the company is pulling out all stops to keep its customers and maintain its dominance in an increasingly saturated market.
Professor Amanda Lotz from QUT’s Digital Media Research Centre and School of Communication told Mumbrella the launch earlier this month by Netflix allowing subscribers to give their favourite titles two thumbs up is not just a publicity ploy.
“Streaming services are rapidly evolving. It is estimated that Netflix is in half of homes in the UK, US, Canada, and Australia, but growth is slowing – last week the company announced its first decline in subscribers for more than a decade which sent investors into instant panic mode, knocking billions off its share price,” she said.
“Asking subscribers to indicate what titles they love helps Netflix prioritise titles likely to keep people paying. They are doing this in an environment in which subscribers are starting to cancel as much as add new services.
“Netflix is entering a new phase, and we are hearing how the company may introduce advertising as well as crack down on account sharing,” she added.
During the company’s quarterly earnings call in the US last week, the CEO of Netflix said the company is open to an advertising supported subscription model in the near future after years of rejecting calls for an ad-supported streaming tier.
In a statement, Netflix said it ended the first quarter with 200,000 fewer subscribers than it had in the fourth, missing on its own projection of adding 2.5 million customers in the period. As it stands, Netflix has 221.64 million global subscribers.
“One way to increase the price spread is advertising on lower priced plans. Those who have been following Netflix know that I have been against the complexity of advertising and a fan of the simplicity of subscription,” said Hastings. “But I’m a bigger fan of consumer choice and allowing consumers who would like to have a lower price and are advertising tolerant get what they want.”
“The online ad market has advanced and you don’t have to incorporate all the information about people that you used to. We can be a great publisher and have other people do all of the fancy ad-matching and integrate all the data so we can stay out of that and be focused on our members and create a good experience,” he said.
Netflix has already been making moves to cut back on content spend, and according to an article published by TheWrap, the streaming giant has already walked its head of the animation department, Phil Rynda, along him several staff members and in-production projects.
“It is important to separate operating revenue (which comes from subscribers) and stock market capitalization (which is investors’ assessment of the future earning outlook of a company relative to all the other companies they can invest in),” explained Lotz.
“The subscriber losses (200,000) can entirely be accounted for in cutting service to Russia (700,000). It isn’t an indication that people are dropping Netflix at new, higher rates, although it has not added new subscribers as quickly as in the past. The stock re-evaluation is tied to slowing growth; it still has far more subscribers than other services (in roughly half of homes in the US, UK, AU, and CA) so this is inevitable, and sooner than predicted, but the service still has a stronger global proposition than many others,” she said.
Professor Lotz is the author of new book, Netflix and Streaming Video: The Business of Subscriber-Funded Video on Demand (Polity), which has been described as the first book to provide a comprehensive foundation for understanding the business of subscriber-funded streaming video and its implications for the role of these services in culture.
She draws on two decades of research to highlight the similarities and differences among streaming video services such as Netflix, Amazon, and Disney+ and among different video distribution technologies including broadcast, satellite/cable, and internet.
“Netflix wants to know what you love because it is core to maintaining those monthly fees,” Lotz explained.
“The metric of success for ad-funded channels and for movies in cinemas is simply the number of people who turn up to see each title. But the titles that attract the most viewers generally aren’t the ones that resonate most deeply. To earn a monthly fee, subscriber-funded services need titles that resonate.
“A key difference in the business of subscriber-funded streamers is that their business model prioritises serving viewers rather than advertisers’ desire for the most viewers,” she added.
“Subscriber-funding allows services to benefit from creating or offering titles that clusters of viewers truly love, even if they don’t attract an exceptionally large audience.
“In my new book, I describe the measure of resonance as a ‘satisfaction coefficient’. Think about all the titles you watched recently on streamers and award them a score, one for the least satisfaction and ten for the most. The value of each title isn’t simply how many people watch, but how many view it after it’s been moderated by that satisfaction.
“As the number of streaming services grows faster than household budgets, it’s those titles scoring ten that are more likely to keep you paying, even if those titles aren’t among those on ‘Top 10’ most-watched lists.”
Lotz said the problem for Netflix was that it was not easy to know what titles earn the highest satisfaction coefficient.
“There are indicators – such as the first content a new subscriber streams, how quickly someone consumes episodes, or titles that are rewatched, but this rating feature suggests those indicators aren’t sufficiently effective,” she said.
“I think of the titles that deliver my highest satisfaction and it would be difficult to identify just from my consumption. Often, I’ve found them long after they entered the library and I didn’t watch them quickly because, well, life.
“In some cases, I savoured the final episodes, meting them out because I didn’t want the story to be over or wanted to save them for special occasions. None of that behaviour would register just how much I value those titles, while I often view titles that everyone is talking about quickly to see what the fuss is – although rarely do those titles earn a high satisfaction mark.”
Lotz added that while streaming services have access to exponentially more data about viewer or household-level viewing relative to the pre-digital industry, it’s not always enough.
“Asking viewers to indicate most highly valued titles helps the service understand how its subscribers value different titles and to target spending on new titles efficiently,” she said.
“This is a very different programming logic than has previously driven our understanding of successful series and movies.
“On-demand delivery doesn’t require the whole audience to watch the same thing at the same time, which is important because it expands the scope of stories that can be commercially viable.
“Whatever Netflix does next, you can be sure the other streaming services will be watching closely.”
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