Contact Us: 678-686-1125

Netflix Isn’t Comfortable Just Sitting on a Dominating Lead

When Reed Hastings and Marc Randolph began a video-rental company in 1997, few experienced business professionals would have predicted just how phenomenal and influential the cash-starved start-up would become, not only in an industry that had yet to be envisioned, but how dominant its presence would become in consumers’ homes around the world. Initially, the emerging giant received amazingly little venture capital funding or attention from speculators in the late 1990’s. Today that suspicious little company called Netflix is the largest provider of streamed entertainment in the world. At the end of 2021 Netflix revenue topped $29.7 billion with more than 200 million subscribers worldwide. Profits for last year are estimated at $5.1 billion. Competitors like Disney +, Hulu and Amazon Prime have clearly been relegated to “also ran” status. Industry dominance secured, at least for now.

The new year is producing some surprising turns of events for the industry powerhouse as new subscribers level off for the first time in its history. Netflix forecast it would add 2.5 million customers in the first quarter of 2022, but it lost 200,000 customers. It is always interesting how market-watchers are drawn to blood in the water when an historical performer fails to deliver on anticipated results. The streaming industry sharks are circling and nipping at the tail of the biggest fish in the streaming sea. Some are predicting a coming end to Netflix’s commanding dominance. But is that prognostication valid or just silly attention getting?

Given the easing of the effects of the COVID-19 pandemic, an event that escalated the company’s position in the marketplace, the failing economic environment and dismal predictions of pending recession may just have a pausing effect on even the biggest entities.

Even the most dominant performer needs to adjust its marketing strategy in order to remain in the top position, particularly in a market that has attracted some pretty savvy competitors.

Password sharing, the popular benefit initially started to attract new subscribers, is being outed as a reason new, paying, onlookers are tanking. A 2019 MoffetNathonson survey found that “41 percent of Netflix users aren’t paying for their own account, 27 percent watched using the paid subscription of someone in their household and 14 percent used a password shared with them from a friend or family member from outside their home.”

In March, Netflix announced plans to ask users to pay extra in order to allow people outside of households to use Netflix services. “We really see that second group as a tremendous opportunity, because they’re clearly well qualified,” says Netflix’s Chief Operating Officer Greg Peters.  “And so now our job is to better translate that viewing and the value that those consumers are getting into revenue.” The new approach will be tested first with Netflix’s subscribers in Chile, Costa Rica and Peru. The change is very popular among profit and stock market and efficiency pundits but the move away from “free” to charging for what has been a unique but popular benefit among consumers could have the opposite effect. Will the move attract “free” users into the Netflix stable or drive them to investigate competitive provider’s accommodations? Clearly standing in place and marking time is not a policy getting much consideration with Netflix leaders, and rightfully so. Standing on a big lead never translates to dominance in any competitive market environment, and setting the market strategy to “off” will only produce declining market share, even for a dominant industry leader.

Meanwhile, the company is instituting cost-cutting measures to coincide with the slowing revenue growth and has announced a new company culture policy. “We program for a diversity of audiences and tastes; and we let viewers decide what’s appropriate for them, versus having Netflix censor specific artists or voices.” The move away from the new woke, cancel-culture approach adopted by several leading entertainment megastars, has proven to be devastating to bottom lines and market position.

Netflix will continue to be an industry leader in producing original entertainment across a large spectrum of consumer interest as it acquires abounding amounts of open-market content for its viewers, an approach that has reportedly drained company cash reserves. But these policies, while displeasing to the financial crowd, are clearly popular to loyal viewers. And that customer-centric strategy may just secure the leadership position for Netflix well into the future.