After financial reporting in July, there’s been a flurry of announcements from Netflix on everything from subscriber numbers to strategy plays — all of which can be read as portents of what’s to come for the streaming “sector” and the problems it has yet to solve.
Netflix isn’t the first streaming platform, or even the original entertainment on-demand provider, but it certainly is synonymous with those categories and quickly became the dominant brand. Like Google, Netflix is as much a service as something that people do. “What did you get up to this weekend? Oh I netflixed for hours.” Not to be confused with the more amorous endeavour of “Netflix and chill”. If you don’t know the difference, I won’t tell you to “Bing it”, just as we don’t “Roku and relax”.
I can offer up a tableau of statistics about market dominance, but this “verbing” of a brand is a great litmus test for zeitgeist saturation.
For the market though, the hard numbers do matter. When Netflix revealed that its subscriber losses for the second quarter of 2022 were just less than 1-million — as opposed to the 2-million initially expected — the stock actually rose, recovering a small slice of the losses from earlier this year. But the share price is still way below the highs of late 2021. At least it’s in good company there, as technology companies have taken a battering in 2022.
I wonder though, if investors are unnecessarily skittish. For the record, this is 100% not financial advice, but I am not yet shaken by what some are calling the “streaming wars”. I am far from ready to count Netflix out, and honestly quite excited about the innovations in provision and payment models that will emerge when the dust settles on this battle for our eyeballs.
In fact, I think the raft of Netflix announcements gives us a nice template for which skirmishes to pay attention to, starting with competition. CEO Reed Hastings has acknowledged the challenge that is the increasingly cluttered market. For those of us out here in the digital sticks it is easy to forget how many entrants there have been in recent years. Some of these are relatively small fry, but not all.
In the US, for example, we see most households and individuals “stacking” their subscriptions. Research firm Kantar said in January that 82% of US households have a video-on-demand (VOD) subscription and that the average household uses 4.7 services, while more than 60% still have paid TV options (such as cable). Then when inflation bites these nice-to-haves will be first to go.
The secondary profile options on the platform are intended for users within a household, but every man and his mom, buddy and still-signed-in-ex seem determined to circumvent that rule
Services that are “stickier” are safer, and I believe Amazon and Apple’s models are among the stickiest. Netflix is (now) a “pure play” provider, while Amazon’s Prime service, for example, is a mere side to its retail efforts — an extremely profitable side, but not yet its star player. If you are embedded in that Amazon universe, or the Apple universe for that matter, you might think twice about cancelling your VOD “add-on”.
Another strategy for maximum stickiness is the depth of your content library. A provider such as Disney+ had all kinds of advantages when it launched given the huge library of works it can lay claim to — titles that disappeared off other services when it arrived on the scene.
Netflix is also testing the waters on value per subscriber, asking, if you’re not fighting for new users, or losing cash-strapped ones, can you extract more value from those you do have? Like DStv, Netflix’s big enemy is password sharing. The estimate is that 100-million households are “enjoying, but not directly paying” for Netflix. The secondary profile options on the platform are intended for users within a household, but every man and his mom, buddy and still-signed-in-ex seem determined to circumvent that rule.
Netflix plans to deal with this by offering users both the option to pay more for additional households and — in partnership with Microsoft — an ad-supported tier, which is expected to launch in early 2023. The latter will go live in a handful of markets first, and what it will look like isn’t clear yet — or fixed. Some commentators anticipate this will take a similar form to YouTube, with advertising largely queued up front, rather than in the middle of shows.
Service decommissioned
But honestly, who knows? In its letter to shareholders last week Netflix specifically said it expects this to evolve as it tries it out and sees what markets will tolerate. It phrased it as listening and learning from users, but really it will be about finding the sweet spot of what consumers will put up with for a lighter subscription fee.
The entire industry is in a test-and-see phase, and some players will not survive. Vodacom recently shut down its on-demand video streaming tool, as MyBroadband reported earlier this month. A spokesperson later confirmed to Channel24 that the service had been “decommissioned”, and it saw its role as an “enabler” rather. In other words, should you wish to pay for your existing VOD services via the VodaPay app and bundle it into your Vodacom bill, you can do so.
Failed VOD providers in SA include VIDI, Altech Node, Kwese Play, Cell C’s Black and others. Many tried to step up while the global brands were tardy or uninterested in us, but failed to find the critical mass needed to survive. Others couldn’t keep up when said global players descended, exclusive content rights in hand.
I believe markets like our own will be critical for Netflix and its competitors as they seek undertapped pools of users. The big stumbling block though is price sensitivity, especially if you’re chasing volume over value.
• Thompson Davy, a freelance journalist, is an impactAFRICA fellow and WanaData member.
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