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The end of the COVID-19 pandemic (or at least its transformation into something that we just sort of live with) is good news for almost everyone. Consumers are out shopping, traveling, going to movies, and doing whatever the heck they want, which means most sellers and retailers are enjoying renewed purchases. But when they are out and about, spending money on the diversity of entertainment options that have reopened for them, fewer people are at home watching Netflix.

Thus, in April, the video streaming company announced that for the first time in a decade, it had lost subscribers—200,000 of them, in January, February, and March of 2022. It also acknowledged predictions that it would lose another 2 million subscribers in the second quarter of the year.

In a letter to investors, Netflix chalked up the losses to the pandemic and other external factors, including (according to a summary of the report): “a slowdown in the adoption of broadband and smart TVs; password sharing among households; and increased competition from both traditional cable and broadcast TV and other emerging streaming services…. macroeconomic factors including increased inflation and Russia’s invasion of Ukraine, which prompted Netflix to shut down its service in Russia, reversing the modest subscriber growth in the European region by a loss of 700,000 Russian accounts.”

But laying the blame wholly on these external forces may be misleading. Netflix’s poor quality content—peppered with occasional big hits like Stranger Things—also creates problems for the company. Because of the streaming service’s singular focus on subscribers, in contrast with a more multifaceted or flexible approach like Disney’s, which offers streaming services but also provides consumers with in-theater releases, theme parks, and various consumer products, such quality considerations are central and extremely influential.

The list of issues makes the situation seem nearly insurmountable or hopeless, though Netflix would not agree. Rather, the company cites the various ideas it has for regaining some lost business and reclaiming its top spot in the streaming landscape. In particular, it plans to experiment with advertising. In April, Netflix announced it would be offering consumers a lower-cost subscription model, supported by ads, within two years. By May that timeline had sped up, and the service is now expected to launch by the end of 2022. In acknowledging in an internal memo that the move is “fast and ambitious and it will require some trade-offs,” Netflix also reassured its staffers that “every major streaming company excluding Apple has or has announced an ad-supported service.… For good reason, people want lower-priced options.”

Netflix also indicated that it will charge more to customers who share their passwords, and—moving beyond price considerations—work on improving the quality of its programming Notably, Disney+ has announced its plans to offer a cheaper version of its streaming service with commercials. But for many consumers, subscribing to streaming services is appealing primarily because it allows them to avoid advertising.

Thus, whether these initiatives will work to attract new, price-sensitive consumers, or instead will drive even more viewers away, remains the 2 million subscriber question.

Discussion Questions

  1. Why is Netflix losing subscribers?
  2. Will a lower-cost, ad-supported subscription model appeal to customers who might otherwise not have or keep a Netflix subscription?
  3. How would you advise Netflix to get, and keep, more subscribers?

Source: John Koblin and Nicole Sperling, “Netflix Tells Employees Ads May Come by the End of 2022,” The New York Times, May 10, 2022; Brian Delp, “Do Netflix Subscriber Headwinds Hold Lessons For Retailers?” Retail Wire, May 11, 2022; Brooks Barnes, “Disney+ Will Introduce a Cheaper, Ad-Supported Version This Year,” The New York Times, March 4, 2022; Steve Inskeep and Bobby Allyn, “Netflix Is Losing Subscribers for the First Time in a Decade,” NPR, April 21, 2022; Nicole Sperling, “Netflix Loses Subscribers for First Time in 10 Years,” The New York Times, April 19, 2022