When Netflix released House of Cards on February 1, 2013, the creators of the series were certain that it would succeed. For its production, Netflix used an algorithm that had previously analyzed the tastes and preferences of all its users to create a tailor-made series with the least possible margin of error. The result was a resounding success and House of Cards, considered Netflix’s first officially produced and self-financed series, met and exceeded big data predictions.
Thanks to technology, Netflix marked a new era that February. On the one hand, by premiering one of its first series of its own and, on the other, by using a algorithm with the data of its users to create content to suit the consumer. A decade later, the company directed by Reed Hastings is still capable of launching successful blockbusters with series like The Squid Game, with 111 million views in just 17 days, or the Bridgertons, with 82 million, but something has begun to fail in this machinery that seemed perfect.
In the presentation of the company’s results last April, Netflix announced the loss of 200,000 subscribers in the first quarter of 2022, something that had not happened since 2011. In addition, from the American company they are not very optimistic about the rest of the year and, in a letter to shareholders, the directors announced that they expect a drop of two million users in the current quarter. In the stock market, this translated into a drop of more than 35%.
After years of growth, this decline has set off alarm bells and experts are divided into two camps: those who believe that it is a clear symptom of a change in trend and those who predict that streaming will continue its path of success, despite this bump, albeit with some changes.
But the truth is that the signs that indicate that something is not going as well as a year ago in the sector are increasing. One of them came in February of this year when Paramount executives announced huge investments in its streaming service, Paramount Plus, and saw its share price drop nearly 20% the next day. Wall Street was not convinced then that a change in programming would improve Paramount’s results. Also, one day after learning the results of Netflix, CNN canceled its payment platform CNN +, after only one month of life.
A crisis that is not new
“To understand the current crisis, you have to note that this situation is not new. In 2019, Netflix suffered another stock market crash by presenting a loss of customers in the US. and matching the ups to the downs. This decline was caused by several factors. On the one hand, until that moment Netflix had content from other production companies, but they understood that they could create their own platforms, such as Disney or Sky, so it lost large productions. The second factor is that at that time there was enough competition with the telecoms, with whom it competed to win clients that ultimately ended up on the telecom network, so the company had to take action,” explains Rubén Blanco, head of Telecom and Media at NTT Data Europe & Latam.
One of the changes you had to make Netflix it was in the way it delivered its content. “If people stay with me for the time it takes to watch a series, instead of releasing it by seasons, I’m going to release it by weekly chapters, so the client will be more,” says Blanco.
In addition, the company increased its investment in its own series and movies to compete with those platforms that had removed content. Between 2018 and 2021, it invested US$55,000 million in this item. “It also had the advantage of knowing the client very well and being able to produce content that I knew would work,” adds the head of NTT Data.
And finally, the American company understood that competing with the telecoms had a limit and began to sign agreements with them.
But in the midst of these changes came the pandemic, and any hint of a crisis was diluted. It was the golden age of streaming platforms. According to Hootsuite, the increasing trend has been clear since the start of the pandemic: in 2020, during the first weeks of confinement, 57% of users said they had increased their time spent watching movies and series on streaming platforms. In addition, in April 2021, 93.3% of Internet users around the world accessed videos, movies or series through the Internet.
Netflix is still the queen of video-on-demand content, with 221 million subscribers in 190 countries, but platforms such as Amazon, HBO, Apple or Disney+ regularly launch large productions of their own to try to attract users, many of them from Netflix itself. “During the pandemic we experienced an anomalous situation where a lot of content was consumed. But it is normal that now users have eliminated the subscription to some platform. The ease of signing up and unsubscribing helps, and the client does not usually have a specific link with the company beyond the content they want to see”, explains Rubén Blanco.
In addition, these huge amounts of series and movies could be causing a rejection effect among users instead of attraction. According to the latest Nielsen study, Stay of Play, on the state of television and streaming platforms in the US, 46% of consumers feel overwhelmed by the increasing number of platforms and titles available to them, which which can make it difficult to find specific titles in a specific place. And it’s no wonder: As of February, according to Nielsen, there are 817,000 unique program titles (series, movies, specials and other programming) available through streaming services, an increase of about 171,000 (26.5%) from end of 2019.
As in 2019, Netflix took measures to change the downward trend and recapture users, it seems that the current situation involves looking for new formulas.
On the one hand, the growing success of YouTube or TikTok has shown that today’s consumer is also a producer of their own content, “so Netflix would have to take this into account, as it could threaten more traditional streaming companies. TV consumption should be bidirectional. Understand that you can consume, but also create content,” explains Blanco.
In addition, it seems that the world of video platforms inevitably goes through advertising. HBO Max already uses ads to lower its monthly fee, and Disney+ has begun testing it in the United States. The next to jump through hoops could be Netflix. “The success or failure of this model depends on the user understanding whether the price he pays is fair to see content with or without advertising,” adds the manager of NTT Data.
And, finally, these platforms will have to continue betting on the production of original content and, if possible, following the recipe for guaranteed success that technology offers them.
Undoubtedly, streaming will continue to be an upward trend, perhaps not as we currently know it, but the million dollar question is whether success will fall on a single company or will customers be distributed more widely.