Netflix slump spells trouble for the subscription model
Giving Netflix the chill
That was the view given by The Guardian, who explained the consumer migration away from Netflix using phraseology that has itself become synonymous with staying in and consuming online content. The on-demand specialist was once seen as the fusion point between online video and traditional broadcast, providing long-form film content through a digital streaming service. And this may still prove to be the case, if this latest round of results proves to be a blip brought on by its price increase.
Netflix trades on the NASDAQ. It is valued at somewhere around the US$30bn mark, and even those familiar with the service may be surprised to learn that it was actually founded in 1997, a year before Google and just three years after Yahoo. Beginning as a DVD-mail service, it wasn’t until Netflix introduced its online streaming option in 2007 that the company began to grow into the 83 million strong membership behemoth that we see in play across 190+ countries today.
And it’s not all doom and gloom. Analysts can be quick to sound the alarm bell on any online property that shows even the slightest hint of slowdown – a psychological paranoia harking back to the events of the previous Dot-com bubble combined with what appears to be a seemingly now ‘Unicorn’ obsessed Silicon Valley. But the company still added 1.7 million members worldwide between April and June, garnering global revenues of $1.96bn for the second quarter.
Nonetheless midterm the stock has refused to bounce back to anything like its pre-earnings levels. And it may be that this quarterly blip becomes a quarter long slumber, before the company can ingratiate itself to investors at its next report.
The curious case of Netflix
There are a couple of things going on here, and as is often the case they occur at both micro and macro levels.
Firstly, the company has undoubtedly had to manage an inevitable price increase that has led to a drop-off in existing members. Legacy subscribers had until recently been paying $7.99 pcm for Netflix, a rate of two dollars lower than new subscribers. The ‘brining into line’ of this discrepancy had been something that older subscribers were warned about many moons ago, and it is finally kicking into effect. This exodus was also fanned by the flames of the media, who brought additional attention to the price increase through its reporting in the press and helped exacerbate the drop-off. It’s also fair to say that the growing prominence of services like HBO Now, Hulu, and Amazon Prime introduce a competition element to the Netflix empire, which it had not previously had to deal with on such a scale.
However at macro level there may just be something more going on, and that could spell trouble for the currently popular subscription model at large. When you think about it, the Netflix business made sense at a time when the ‘library system’ was still in play. DVDs cost $10+ to buy and own, whereas a rental scheme came free at the price, and movies could be rented and taken back for a half or even a third of this value. Moving into the online world this made sense, because DVDs largely retained their price even as the market for physical content declined, and it also removed the headache associated with real world visits or real world mailings to and from the movie store. But we now find ourselves in a world of increasing choice, increasingly disposable content, and decreasingly linear viewing habits. The bundling up of content was an interesting media evolution made possible by the advent of internet technology. But now that technology has taken us a step further, to a place where apps and iTunes, and in-game purchases allow for single, small, one of payments for very specific items.
Music streaming services like Tidal have struggled to gain momentum, while micropayments have become an increasingly intriguing option to publishers. A $7.99 monthly subscription fee was undoubtedly once appealing compared with a $40 PCM cable fee, and DVD movie rentals on top of that. But in a digital age of frictionless sharing, where we are constantly discovering new things and hopping from one media page to the next, it may just be that the online subscription model comes under even greater scrutiny in the coming years.
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