Netflix is ​​inspired by Spotify and Apple for its change of course

Netflix’s latest earnings call was sweet after two sour harvests: they posted earnings of $3.1 per share (expected $2.13), made almost $100 million more than expected ($7.93 billion) and also beat their forecast of new subscribers: 2.41 million compared to the 1.09 million they expected to achieve. Many of them in Asia, a region where recent forces to grow back were focusing.

Netflix came from a bad stage in subscriber trend once the pandemic was left behind that ended up catapulting them, and also in terms of product, making many decisions that clashed with their original culture, the one that served them for their global boom in the second half of the last decade.

No sharing accounts and opening to other verticals

The best example is how Netflix has gone from encouraging its subscribers to share their account with other friends through their profiles on social networks… to look for ways to end this practice, limiting it only to members of the same household.

First charging a supplement to those who did so, then facilitating the export of viewing history and recommendations, and as announced, with more maneuvers in 2023. The line they commented on was in allow subscribers to create subaccountsor what is the same, pay other people’s bills themselves (friends or relatives)

This change was symptomatic: the placid future of Netflix is ​​over, which now has to face a streaming war where its competitors only have one more leg of their business in video on demand, not 100% of their turnover.

Restrict shared accounts as a measure to quickly drive new signups it is only one of the measures with which to face the end (or the interruption) of what was an unstoppable growth. There is more.

is also the most natural way to increase revenue beyond direct subscriptions: advertising. A few weeks ago they announced a new supported plan with ads and many playback restrictions in exchange for a lower price than usual.

Spotify, which had to deal with a similar problem a few years ago, also bet on advertising. Its founder, Daniel Ek, commented that the 10% it represented for the company’s turnover was going to be 30% in a few years, and this largely explains its great commitment to podcasting, a product without too much cost for the platform (beyond its very expensive signings and original productions, it benefits from feeds free) that allows listeners to be segmented much better than simple music, and thus make them listen to more successful ads, and therefore, more expensive.

Netflix is ​​following similar steps, incorporating advertising to monetize those who do not want or cannot spend the money that the monthly subscription costs, and with these advertisements complement their income until it is equal to that of users of the traditional modality.

Then there is something that already comes from afar: increase the average revenue per user. There is a natural way to do it: letting time pass. And that the park of 1080p televisions is dying to give way more and more to more 4K panels in homes, and thus effortlessly attract subscribers to jump from the intermediate to the superior plan, the only one that offers 4K.

Another not so natural way is raise prices periodically, something it has been doing every two years since it landed in Spain, as well as in other markets. The basic plan has been maintained for these seven years, but the intermediate plan is already more expensive than the superior one cost when the service arrived in our country. This was before we saw inflation skyrocket to 10%, but Hollywood hiring inflation in the heat of the streaming war boom anticipated the riot.

Finally, Netflix can (and has already done so, and will continue to do so) resort to grow through other content verticals. They have been betting on video games for some time with little success as a result of a modest approach, but far from giving up, they have plans to go further by launching games in the cloud, focusing on it as a long-term strategy, according to Mike Verdu, the responsible for the video game section of the company.

While an initial reading might be that they’re either going to release their own Game Pass Ultimate or a successful attempt at Stadia (rest in peace, and they actually referred to it as a technical achievement with business model issues), they took care of clarify that the shots are not going that way and that for the moment they see it as a complement, an added value, and not as something that justifies the subscription by itself.

A movement, by the way, similar to that of Apple when it began to focus on services as a growth path beyond hardware. First, it was about diversifying income by not depending so much on the iPhone, which went from accounting for two thirds of turnover to half, and falling. Then, to reinforce services with greater ease to scale them and better profit margin.

Look at my portfolio, not the subscribers

There is another parallel with Apple in the momentum from Netflix: in 2018, when the iPhone was already showing signs of having reached its unit sales ceiling, Apple announced that it would stop communicating sales data, I would only give the billing. Coincidentally, Netflix has made an identical move: will no longer communicate the number of subscribers (usual thermometer for the value of its shares), only the dollars earned. A way to change the reference to follow to determine your success.

The other link pending a possible big change is that of Netflix’s classic distribution model, which always opted for a joint premiere of all the episodes of a season. ANDIn some cases this model has been broken with an artificial separation of the same season into two waves of episodesas with the end of The Money Heist or of stranger thingsbut beyond that trick, a priori continues to bet on this model.

HBO, Disney + or Apple TV + bet on weekly episodes, a way to ensure that although the conversation generated by a series is less than if it were broadcast suddenly, it is more sustained over time and makes hiring and cancellations too fast difficult. . Netflix achieves massive and intense conversations, but less lasting, at least until a new season arrives. The Squid Game, Stranger Things, Queen’s Gambit…

And so we come to the end of 2022, with a Netflix that:

• It is no longer as cheap as it was seven years ago beyond the plan in 720p
• embrace the publicity
• It is dedicated to other types of content, and will go to more
• You do not want us to use the number of subscribers as a metric of your success, but your income
• And it no longer promotes that we share accounts: it makes us go through the box

Notable differences that indicate not only a change of stage but also of culture in the company, possibly the result of the movements in its management that have taken place in recent times.

The next few years will tell if this Netflix strategy at a difficult time will serve to consolidate itself in a sector that now, unlike in its early days, is dominated by actors who have much more financial muscle and other activities so as not to depend solely on the streaming. Of course if we look at the market share, Netflix is ​​still king there.