This analysis was first published in SvD Näringsliv, in Swedish, on April 23rd, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
CNN’s new streaming service is being shut down after less than a month, and Netflix is losing subscribers for the first time in more than a decade. The boom in streaming services may be coming to an end, and there are several reasons why.
There was nothing wrong with Reed Hastings’ confidence when the Netflix CEO presented his quarterly numbers in October 2016.
“Password sharing is something you have to learn to live with,” Hastings said. “We’re doing just fine as things stand,” he added.
“Narcos” and “Stranger Things” had both been hits, and revenue for the quarter had crossed $2 billion for the first time. The stock soared.
Fast-forward to this past week, just over five years later, and the tone is rather different.
Netflix lost paying subscribers for the first time in more than ten years. A new kind of ad-supported subscription is being evaluated internally. And viewers sharing their passwords is being singled out as one of the biggest culprits behind the struggle to generate more growth.
The stock crashed more than 35 percent and wiped out four years of gains. Is this possibly the end of the streaming boom?
Netflix isn’t the only one having trouble in the market. Competitor HBO Max did announce it had added three million subscribers from the previous quarter, but it also said that its parent company’s new flagship, the streaming service CNN+, would be shut down after just one month.
According to industry reports, CNN+ is said to have cost $300 million, roughly SEK 2.8 billion, to develop — which would mean a cost of around SEK 95 million per day the service was up and running. The reason for the shutdown was the poor viewership — fewer than 10,000 daily viewers, which has to count as a total flop.
The growth for HBO Max comes partly from expansion into new countries, now a total of 15. Launch offers and the novelty factor make it easier to pull in new users. That is a luxury Netflix no longer has, since it is already present in 190 countries. If anything, it lost 700,000 users when it pulled out of Russia.
For a player as large as Netflix, the question becomes purely mathematical. Even with very low churn in percentage terms (estimated at around 2.4 percent), you still have plenty to replace when you start with 222 million users. The challenge is simply that there aren’t many countries left to grow in.
Confidence in the streaming market and the valuations of these companies have historically reflected near-infinite growth, as ordinary cable TV viewers switched over to streaming. But increased competition among services has made it hard to top up with enough new viewers for all of them. Instead, customers are starting to pick the service based on which show they want to watch at the moment. According to consulting firm Deloitte, 25 percent of American streaming customers have cancelled their service and restarted it again within a year. Loyalty to any individual service is fairly low.
Other clouds on the horizon are shifting consumer behaviours. Reed Hastings’ famous 2017 line about competing with sleep may be a factor, but people probably aren’t sleeping any more now than a couple of years ago. Instead, it is the interest in other kinds of entertainment services, like TikTok, that is surging enormously worldwide.
Consumers aren’t necessarily choosing between TikTok and Netflix — but indirectly, the time you spend on entertainment is limited. And the more of that time you spend on TikTok, the less valuable the other options become.
But really, the problem for the streaming services is not a lack of interest — it is a question of money. Users don’t want to pay for all of the services at once because it becomes too expensive.
That Netflix is weighing an ad-supported tier is, therefore, logical. Because the video service that stands as the biggest winner in this fight is the one that doesn’t charge at all — YouTube. When users are deciding which subscriptions to keep running, YouTube remains as an option alongside all of them. Free, ad-supported — and immune to the battle for subscribers.
