Netflix is losing subscribers and revenue
Streaming services turn to commercials in an attempt to shore up income
For the first time ever, viewers watched more streaming TV last month than broadcast or cable shows. Streaming has beaten broadcast before for viewers, but never cable, according to the Nielsen ratings organization.
But Netflix, long the leader in the industry, lost customers last quarter for the first time since 2011. And many streaming media companies are introducing commercials to boost their revenue, raising questions about whether they can maintain their gains over traditional TV providers.
Netflix CEO Reed Hastings announced the company’s loss of 1 million subscribers in the second quarter of 2022 and predicted a 29 percent decline in year-over-year growth for the third quarter. Netflix stock also fell over 50 percent this year, leaving the company to examine alternative methods of income.
Other streaming services have challenged Netflix’s dominance in the last couple of years. Netflix lost fan favorites like The Office, Parks and Recreation, Friends, and all Disney content when media companies launched their own platforms and brought their content home. Some subscribers left when their favorite shows left, and others left when Netflix raised prices. After the most recent price hike in January, the company reportedly lost 600,000 customers in the U.S. and Canada.
In an attempt to boost revenue, Netflix intends to quash password sharing between family and friends. The company also announced a partnership with Microsoft to create an ad-based subscription tier for a lower monthly price.
“We know that there’s price sensitivity around consumers,” said Netflix COO & Chief Product Officer Gregory Peters. “We’re bringing a wider range of prices through the ad-supported offering, a lower consumer-facing price to be able to attract a broader set of members.”
Netflix isn’t the first video streamer to run commercials. Hulu, Prime Video, Peacock, Paramount+, and Showtime successfully integrated ad-based subscriptions, drawing more customers through lower prices, service bundles, and partnerships. HBO Max introduced a cheaper ad-based option and gained 3 million subscriptions within the first three months of 2022. Disney+ also recently announced both a price hike and the creation of an ad-based tier by late 2022.
Though commercials offer customers subsidized streaming, they might not be a sustainable revenue solution given the troubles digital advertising has had.
After a record-setting 2021, in which digital advertising experienced phenomenal growth, tech giants Google and Facebook are having a difficult 2022. Their advertising revenue, which accounts for almost all of their profits, is drying up. Earlier this year Facebook slashed its hiring, and CEO Mark Zuckerberg told employees, “If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history.”
Inflation is putting pressure on companies, causing them to cut back on ad spending. The Wall Street Journal reports that digital companies are often the first to feel the pinch because their advertising can be turned on and off almost immediately.
Many consumers will welcome the proliferation of streaming services offering various tiers and options. But many of these new services have yet to achieve profitability, and ad revenue might not help them get there any time soon. Netflix remains the king of streaming, but the streaming wars are far from over.