Few companies have gone from heaven to hell as quickly as Netflix. This week, another humiliation for a rapidly growing list. The company’s own shareholders are suing Netflix.
Investors accuse Netflix of having misled the market regarding its ability to increase the number of subscribers to the platform in the first quarter of 2022. The company announced in April that for the first time it lost subscribers, which accelerated the fall of the shares of the company. company that has already lost more than 70% of its market value. In November Netflix was worth $306 billion, last week just over $80 billion.
This drop in market value also angered Netflix employees, as most of them have their compensation tied to the value of their shares. Cost cuts and layoffs are also planned for the company, including affecting the platform’s series and film productions.
In the United States, content producers already complain about pressure from Netflix to reduce costs and how the company over the years has increased its control over productions, antagonizing collaborators, even with increasingly worse artistic results.
Competitors, on the other hand, do not hide the joy of seeing Netflix in crisis. The company was seen as arrogant by the market and one of its most common practices was to steal executives from competitors’ gold weight.
Everyone hates Netflix
Investors, employees, content producers and competitors. Everyone hates Netflix. But the platform is still loved by many of its users. But maybe not for long, judging by the planned changes.
Among the news from Netflix to combat the drop in subscribers: the adoption of advertising on the platform, shorter seasons of the series and implementing a controversial fight against sharing passwords. The last topic, barring password sharing, is undoubtedly one of the biggest risks ever faced by the company.
Netflix ended the first quarter of this year with 222 million subscribers. But according to the company, more than 100 million households use shared passwords and watch Netflix attractions without paying.
The platform never worried much about it, but it changed its position when it started to get more and more difficult to add new subscribers, as the pandemic eased and people returned to leave the house.
Angry Netflix subscribers
In March of last year, Netflix started a test in France. At the time, users began to receive warnings when using third-party accounts alerting them to the need to have their own subscription. “If you don’t live with the owner of this account, you need your own account to continue watching,” the message read. To access the service, you needed to verify your account with an email or text code, or create a new account with a 30-day free trial.
Netflix did not give details, but after many complaints the company changed its strategy. A few days ago he announced that he would start a new test in Chile, Costa Rica and Peru.
“If you have a sister, say, who is living in a different city, you want to share Netflix with her, that’s great,” Greg Peters, Netflix’s chief operating officer, said during the company’s April earnings call. “We’re not trying to end this sharing, but we’re going to ask you to pay a little extra to be able to share with her and for her to get the benefit and value of the service, but we also get the revenue associated with that view.”
The numbers vary, with an additional R$11 in Peru and R$15 in Chile and Costa Rica.
The result of the novelty was a revolt of users in Chile, Costa Rica and Peru. The hashtag #ChaoNetflix (#TchauNetflix) became the region’s top trend on Twitter after the announcement, with hundreds of people tweeting images of their unsubscribed Netflix screens. The recurring themes of the comments were “unfair charges”, “prices rising” and “because you are #@$% thieves”.
On the other hand, competitors took the opportunity to provoke Netflix. HBO Max, Amazon Prime and Apple TV+ took to social media to highlight that they didn’t limit password sharing. The most popular campaign was from Apple TV+, which sent a promotional email saying that Chileans could be as promiscuous as they wanted with their passwords on Apple streaming.
In Costa Rica and Pera, the change also generated outrage on social media. The choice of Peru seems particularly clumsy. Netflix has already been facing public criticism for its first production in the country, “Hasta que nos volumos a find”. The film was accused of promoting brownface (or blackface), a practice in which black people are mocked for the entertainment of whites.
When does billing start in Brazil?
The start will depend on the results of ongoing tests. If the value of cancellations is greater than the financial return of those who pay more, the test can even be canceled and the charge dies.
The test taking place in three Latin American countries increases the chances of Brazil being one of the first major markets to receive the new charge. If everything works, and it’s a big ‘if’, the collection could start in the second half of the year. According to Netflix’s director of operations, the plan is to take the model to all countries in which the company is present in a maximum of one year.
Peters also said that Netflix could adjust pricing or revise its strategy. But it won’t be easy. A survey by Time2Play points out that about 80% of Americans who use someone else’s password say they wouldn’t pay to have their own new account if they couldn’t share the password. The research doesn’t show how many of the subscribers who already pay would be willing to pay more for the “free riders” to continue to have access.
When asked about the charge for sharing passwords in Brazil, Netflix replied through its press office that “The test is being carried out only in Chile, Peru and Costa Rica” and that the information is available on the Netflix blog.
How will it work?
According to the Netflix blog, to add an extra member: “Members of our Standard and Premium plans will be able to add sub-accounts for up to two people they don’t live with – each with their own profile, personalized recommendations, login and password – at a price lowest: 2,380 CLP in Chile, 2.99 USD in Costa Rica and 7.9 PEN in Peru”.
To transfer a profile to a new account, the company said, “Members of our Basic, Standard and Premium plans can allow people who share their account to transfer profile information to a new account or an extra member sub-account – keeping View History, My List, and Personalized Recommendations”.
Advertising can encourage Netflix
The beginning of ad serving on Netflix may also help explain Netflix’s shift. With a cheaper plan option, removing the “password rides” could increase the audience of those who consume advertising on the platform.
Netflix is trying to speed up the hiring of a commercial director in Brazil, and has even approached TV market executives. Reed Hastings, co-CEO of Netflix, said in April that he believes advertising will reach the platform in between one and two years.
Netflix’s idea is to use advertising to increase its average revenue per user (ARPU). In the fourth quarter of 2021, Netflix had an average ARPU in the US and Canada of BRL 74. The number refers to subscription revenue only. In comparison, Roku had an ARPU of BRL 215 over the same period, an increase of 43% year-over-year. Roku, which offers advertising on its platform, has less than half the number of active accounts that Netflix has, but has managed to generate nearly three times the revenue per user.
Price increase could be shooting yourself in the foot
If Netflix has 100 million households watching its content without paying, it seems logical that if it started charging them, a significant portion of this audience would become subscribers, which would equate to millions of new subscriptions. But it’s not that simple.
There are more and more competitors and with better and better content (even superior to that of Netflix). For subscription video services, bringing in new subscribers is only half the battle. Keeping existing subscribers and ensuring they don’t unsubscribe is equally important.
In the US, the most mature streaming market, 37% of consumers have canceled a paid video streaming service in the last six months, according to Deloitte’s Digital Media Trends report. And as the number of services increases, so do the opportunities for subscriber switching: 33% of US consumers said they added and canceled a subscription in the same period.
In Chile, an increasing number of users are turning to Cuevana, a piracy site whose popularity has waned in recent years due to the popularity of Netflix in the country. Piracy consumers feel justified when they think the prices are too high.
Disney can also charge
Following Netflix’s announcement of monetizing the practice of sharing passwords, Disney+ appears to be gearing up to do the same. The Mickey Mouse company recently sent a questionnaire to its subscribers in Spain asking why they are sharing their Disney+ passwords with people outside their own home. The survey was first posted on Twitter and reported by Spanish technology website Genbeta. Sought, Disney did not comment.
It is worth remembering that like Netflix, Disney also has plans to launch advertising on its streaming platform, Disney+, as it already does on Hulu, of which it is a partner.
But in the case of Disney, when will the change arrive in Brazil? Probably only after Netflix started charging password sharers. Netflix has a lot more subscribers than Disney, and right now it’s under a lot more pressure. Netflix basically has subscriptions as its source of revenue, while Disney has TVs, studios, parks and hotels, which are even more profitable than streaming.
The challenge of streaming platforms is immense. After years of euphoria, it was time to pay the bill. But if companies aren’t careful, they risk losing not only password thieves, but also those who pay for subscriptions.