Why has Netflix managed to recover in the struggling video industry?
While video streaming services have proliferated and are cannibalizing each other, the major Netflix has managed to recover its performance despite losing paid subscribers. The Financial Times, a financial media outlet, has summarized the trajectory of Netflix's success.
How Netflix won the streaming wars
https://www.ft.com/content/465a2d0d-8973-4d8d-827d-8729737e6606
In 2022, Netflix recorded its first decline in subscribers in 11 years . This is due to the proliferation of competing video streaming services, including Disney+.
On April 19, 2022, Netflix co-founder Reed Hastings announced in a video conference for investors that the company would begin 'cracking down on password sharing' as a measure to recover from declining membership. In addition, it has been revealed that the company is seriously considering the idea of introducing an advertising service, which Hastings has long rejected.
Netflix, which is suffering from declining membership and a plummeting stock price, aims to introduce a 'low-priced plan with ads' by 2022 - GIGAZINE
Then, in May 2023, they began cracking down on password sharing.
Netflix subscriber numbers fall for the first time in a decade, and the company is considering ad-supported plans as a countermeasure; 100 million users may be sharing passwords - GIGAZINE
Netflix's 'crackdown on password sharing' had been under consideration even before its subscriber numbers began to decline, and then-CEO Hastings entrusted the initiative to COO Greg Peters.
Peters' mother worked as a computer programmer for IBM, so Peters learned to code as soon as he learned to read and write. Before joining Netflix in 2008, Peters worked for companies such as Tivo and Red Hat Network.
Peters will begin testing password sharing crackdowns in Chile, Costa Rica and Peru in early 2023. Initially, there were many skeptical views on password sharing crackdowns, and some analysts predicted that 'Netflix will lose many users by cracking down on password sharing.'
However, Netflix's crackdown on password sharing was a great success, and the company's performance recovered spectacularly. As of the end of March 2024, Netflix's total number of subscribers reached approximately 270 million, and its sales also significantly increased compared to the same period last year.
Netflix announces first quarter 2024 financial results, total subscriber numbers increase 16% year-on-year to 269.6 million, and sales and net profits also increase significantly - GIGAZINE
Jessica Reif Ehrlich, a veteran industry analyst at Bank of America, called Netflix's turnaround 'incredible execution.' In January 2023, Netflix founder Hastings will step down as CEO of the company , with Ted Sarandos and Greg Peters taking over as co-CEO. Ehrlich said of the CEO transition, 'This has got to be the smoothest leadership transition we've ever had. It's been flawless.'
While Netflix has recovered, its competitors remain in a slump. The movie industry has yet to record ticket sales like they did before the COVID-19 pandemic, and the cable TV industry continues to decline.Disney+ is the only streaming service to have successfully turned a profit in the summer of 2024 .
In response to this situation, Shari Redstone, chairman of Paramount Global, which owns CBS, one of the three major networks, and Paramount Pictures, sold the company along with its parent company National Amusements to Skydance Media. At the same time, Bank of America analyst Ehrlich was urging the management of Warner Bros. Discovery to explore strategic options.
The recession in the film industry hit Hollywood's creative community in the form of job cuts and cuts to production budgets. In 2023, actors and screenwriters went on strike in Hollywood, but the recovery in business that many industry people were hoping for has not materialized at the time of writing. 'There is no writer in this town who thinks his career is going well,' said a long-time TV screenwriter and producer in the industry.
Disney announces 7,000 job cuts, Disney+ and Hulu operating losses exceed 140 billion yen - GIGAZINE
Media giant Paramount lays off about 800 employees to cut costs - GIGAZINE
Netflix is becoming more and more prominent in the industry amid a broader recession. CEO Sarandos is chairman of the Academy Museum of Motion Pictures, and Netflix just completed a $70 million renovation of the historic Grauman's Egyptian Theatre on Hollywood Boulevard. Sarandos' wife, Nicole Avant, is a longtime friend of Democratic presidential candidate Kamala Harris and has bought every billboard along the Strip at Sunset Boulevard.
On the other hand, Netflix has drawn the ire of some old-school industry insiders who say it has fundamentally changed the entertainment business, and some Academy Awards voting members are upset that Netflix doesn't release Oscar-nominated films widely, instead only screening them in select theaters for the minimum time necessary to qualify for an Oscar.
'The disrespect shown to Netflix is more than I've ever seen,' said a Hollywood veteran who has held senior positions at major entertainment companies. 'They're eliminating the back-end financial participation of every artist in the world. They're trying to dominate and control everything.'
Netflix maintains the largest number of subscribers and usage time in the video streaming service industry, and in July 2024, it succeeded in capturing approximately 8.4% of American users' screen time. Disney has the second highest share in the United States after Netflix, but Disney + and Hulu combined only reach 4.8% of screen time. There are also various other video streaming services such as Warner Bros. Discovery's Max, Comcast's Peacock, and Paramount's Paramount +, but the current situation is that each service captures less than 2% of Americans' screen time.
When Netflix launched its paid ad-supported plan in November 2022, the company partnered with Microsoft to start an ad delivery service using Microsoft's digital ad delivery system. However, Netflix announced that it would phase out the use of this system and move to its own ad delivery system. At the same time, Peter Naylor, who served as executive director of the advertising business, left Netflix. Netflix has modestly mentioned its ad delivery service, saying, 'Advertising will not be the primary driver of revenue growth until 2026.'
Netflix starts offering 'basic with ads' for 790 yen per month, 200 yen cheaper with ads - GIGAZINE
However, Ehrlich points out that Netflix could be even more successful if it were to expand its advertising business on a large scale. One of the reasons for this is the high loyalty of Netflix viewers. Ehrlich pointed out Netflix's great potential, saying, 'Netflix is like old-time pay TV, where people watch for two hours a day, 60 hours a month. This means that we can reach consumers reliably. Money follows the eyeballs.'
Hollywood and Wall Street alike expect the smaller video streaming services to consolidate or shut down over the next 18 to 24 months, but even if some are eliminated, the Financial Times predicts they will face fierce competition from others.
For example, YouTube, while currently supported by user-generated content, also offers paid content such as NFL Sunday Ticket, which costs around $480 per year.
YouTube's paid TV distribution service 'YouTube TV' raises prices - GIGAZINE
Short-form video service TikTok rolled out a new feature that lets users try out longer videos of up to an hour, while Fox-owned service Tubi is growing fast by streaming older TV titles.
'Competition remains fierce, not just within the subscription streaming category but across the broader category. YouTube is already watched 20% more times on TV than Netflix and is growing at a faster pace than Netflix. Short-form video services will likely remain a competitor as well,' said analysts at research firm MoffettNathanson.
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