Netflix’s position as the king of streaming is under serious threat

Commenting on a tweet about Netflix’s drop in subscriber numbers, Elon Musk suggested that a “woke mind virus” has made Netflix “unwatchable”.

Some people proceeded to take this seriously, completely missing the obvious. He was surely trolling. Has he even watched Netflix? Given his diverse interests and reputed 16-hour, or whatever, workdays, it’s debatable. Even if he has, he won’t have had sufficient time to be able to offer a meaningful opinion on its vast output, woke or otherwise.

The reality is that it’s not a mind virus which has led to the first fall in Netflix subscriber numbers in a decade (200,000 lower than a year ago) with 2 million more switch-offs potentially coming, per the company’s forecast. Boss Reed Hastings is dealing with issues on multiple fronts.

Some are short term and can be shrugged off (somewhat). For example, the group lost 700,000 subs after pulling its services out of Russia. Its numbers would have been in positive territory (albeit still way below forecasts) had that country’s president not launched a war against Ukraine.

The group also enjoyed an artificial growth spurt through the Covid-19 pandemic. When people were shut indoors with no other options, Netflix was there. Now people can go out again so of course they are re-evaluating their entertainment options.

There are other more fundamental, long-term challenges. Given its output, the size of its library, the diversity of its offering, the group increasing its prices was economically justified. But it is strategically questionable with the cost of living crisis eating into the disposable income of its customers in multiple markets.

Meanwhile, competition is hotting up. Disney is booming, HBO Max is there (in the US and other parts of the world), while Amazon is still around, selling its service on the back of its multifaceted Prime offering. Then there’s Peacock (NBC). And Apple. And so it goes on.

Cutting the number of streaming services is an easy way to economise on the household budget. With so many alternatives, Netflix isn’t necessarily the “core” service it once was for some, especially with families. Some switch between them.

Netflix’s response to this multi-pronged assault is similarly multitudinous. First up, it’s going to keep trying to grow internationally. This offers potential. There’s still plenty of growth to be had. Trouble is, the revenue per subscriber likely won’t be anything as meaty as it is in the US or other high-value markets.

The group is also looking at account sharing. In addition to its 222 million subscribers, it thinks there are 100 million more households using other people’s accounts, including 30 million in the US and Canada. There’s a pot of gold there if it could just “monetise” those households. Schemes are being trialled in various markets. Here’s the problem: the phrase “easier said than done” quickly comes to mind. Netflix has looked at password sharing in the past.

Let’s say you offer an “extended family membership” plan as part of your solution. There are people who don’t share now who might team up and go for that if it cuts their overall outlay. Those already sharing and not paying will just carry on. Or potentially find another way around if Netflix does start a crackdown.

Another possibility is the offer of a cheaper tier or levels of membership, perhaps with ads. And/or maybe with delayed access to big/new shows? Trials are surely on the way. If lots of people trade down, you have to hope the ad revenues will be sufficiently robust that it doesn’t matter.

Meanwhile, competitors continue to pick up subscribers. The point at which Disney Plus overtakes Netflix is fast approaching.

Disney’s chief advantage is this: it has franchises – big, established ones and lots of them. These can be used to generate reams and reams of fresh, branded content that will drive subscribers. Some of it is innovative. Wanda Vision, spun off from the Marvel Cinematic Universe, is a prime example of something bold and different. Ditto Loki. Some of it is just meh, such as the Book of Boba Fett, which was birthed from Star Wars. Some of it is run-of-the-mill.

However, what it ultimately does is allow Disney to spend less, and put up less, than Netflix does with its neverending stream of shows you were probably unaware of because your algorithm doesn’t cough them up.

Perhaps we’ll see a shift to take further advantage of hit shows. Bridgerton, the High School Years anyone? Squid Game International? Stranger Things Upside Down in London?

Here’s the thing: the streaming wars were always going to claim a victim or two. This is more likely to happen through corporate action, specifically merger and acquisition, rather than implosion. But it is going to happen.

Against this backdrop, Netflix’s reign as the king of the medium has never looked shakier. The company needs its fixes, either announced or being worked upon, to hit the target as its investors feel the chill.