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magazineNetflix needs to find new ways to grow revenue
A substantial slowdown in subscriber growth at Netflix is putting severe pressure on the share price and has raised concerns about the competitive environment faced by the business and whether it may have reached saturation point.
The company’s latest update (20 Jan) saw it forecast just 2.5 million new users in the current quarter, considerably below analysts’ expectations for 4 million.
Netflix faces intense competition from rival streaming companies including Disney+ and Amazon Prime Video. The former has just taken back control of hits including Modern Family, How I Met Your Mother and Sons of Anarchy to boost its own service.
The expected slowdown in subscribers is particularly disconcerting given it comes against a backdrop of higher content spending. This caused a contraction in Netflix’s operating margin to 8% in the fourth quarter, a decline of six percentage points from the prior year.
If content is no longer a guaranteed competitive advantage then Netflix will need to focus on other areas to sustain user growth and profitability.
One option being pursued is to raise prices for the service. Netflix increased prices in the US and Canada this month from $14 to $15.50. However there is limited scope to pursue this strategy given the considerable premium this represents to the $8 per month charged by Disney+.
However a considerable opportunity exists for Netflix to build out the whole experience of games, consumer products and live events around the group’s intellectual property, which naturally lends itself to great storytelling.
MULTIPLE NEW GROWTH OPPORTUNITIES
Netflix has invested considerable resources in building the technical infrastructure that has enabled it to launch games to members.
This has followed a learning period involving analysing discovery and engagement patterns to determine which games resonate with the consumer. Netflix’s commitment to the gaming segment has also been reflected in its acquisition of talent in the space.
This includes the October 2021 purchase of Night School Studio, developer of the Oxenfree series and Afterparty. Moreover in July Netflix hired Mike Verdu to help lead its video game division. Previously Verdu worked as an executive at Facebook and Electronic Arts focused on mobile gaming.
The Queen’s Ball: A Bridgerton Experience is a good example of how Netflix is building a franchise around live events linked to its TV productions.
Tickets for the event priced at $45 enable fans of the hit series to be transported to Regency-era London. They are able to enjoy a live concert with music and dance inspired by the TV show.
Another revenue generating move might be to consider carrying advertisements when someone watches a film or TV show.
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