In late July, Netflix released its Q2 results to disappointed investors.
The main issue? U.S. subscriber growth is slowing.
Net new subscribers to the streaming services amounted to 160,000 in Q2. That’s compared to 900,000 during the same quarter last year.
Netflix announced that subscribers “are growing, but not as fast as we would like or have been.”
And even though the company posted an increase in earnings, its shares fell 15%.
It’s all about the audience.
What exactly is impacting subscribership at Netflix? What can the company learn from newspapers?
Netflix has a very simple pricing model. It offers one rate for unlimited viewing. In the United States, this rate is US$9.99 per month. There are a few exceptions (for example, some subscribers have been grandfathered on a lower rate).
There have been modest price increases in the past (at one time, the standard offer was US$7.99 per month), and the company blames the news of these increases for its growing churn.
Compare Netflix pricing with a standard newspaper. How much is your newspaper subscription? Well, it depends.
Is it a digital-only subscription or home delivery? Is it seven-day or weekend-only? Is there a special introductory rate? A retention discount? A credit card payment discount? Newspapers have long managed price-sensitive consumers with a range of offers along a spectrum of price points.
News media companies have long invested in retention. Large daily newspapers often have their own inbound call centers that specialise solely in dealing with cancellation requests. These retention teams typically have various offers to entice subscribers to stick around.
In contrast, Netflix is very easy to cancel. Unlike cable television companies, Netflix does not require consumers sign a multi-year contract. And there are no retention offers. Expect Netflix to review these practices as the company combats churn.
News media companies and video streaming services are all competing for consumers’ time and money. Both typically offer a mix of curated and custom content.
Netflix has some very compelling (and award-winning) custom content (Orange is the New Black, for example, is a Netflix Original). It also has a very large library of licensed content. Of course, content is everything to a media company, and good content drives subscriber growth.
The Netflix model allows viewers to binge watch their favourite shows and then cancel the services.
Of course, news media consumers get new content every single day. You cannot binge read tomorrow’s news.
Netflix may reconsider how and when it releases content, and how exactly this impacts churn.
News media companies are accustomed to highly competitive markets. There are all sorts of alternatives for news consumers. And many alternatives are free.
Netflix has generally enjoyed a first-mover advantage in the video-streaming space. Now the market is maturing.
In its Q2 report, Netflix lists its competitors as CBS All Access, Seeso, Hulu, YouTube Red, and Amazon Prime Video. Amazon Prime is now the third-largest video-streaming service in the world, after Netflix and YouTube.
According to Parks Associates, “There were 101 subscription streaming video services available in the United States” earlier this year.
That first-mover advantage is quickly disappearing.
Don’t be surprised if Netflix changes its marketing tactics to combat churn and placate investors. In doing so, the company will be taking a page from the news media marketing playbook.