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The world of Netflix turned upside down, how will you fix it?

2022-04-21T09:57:06.633Z


Call out Eleven and Sheriff Hopper from "Stranger Things," because the world of Netflix has been turned upside down.


How does Netflix plan to recover after losing subscribers?

1:03

New York (CNN Business) --

Call out Eleven and Sheriff Hopper from "Stranger Things," because the world of Netflix has been turned upside down.

The company reported Tuesday that it lost subscribers for the first time in more than a decade.

The news shocked Wall Street and sent shares tumbling 35% Wednesday morning, wiping out $50 billion in market capitalization.

And this was after the company's shares fell more than 40% so far this year.

Simply put, Netflix's terrible 2022 has now turned disastrous.

Pundits and analysts who once saw Netflix as the linchpin of a transforming entertainment industry are now concerned about its future growth.

And they wonder what the future of the company will be like, and of all streaming.

"What's worked up to this point may not work anymore," Michael Nathanson, a media analyst at MoffettNathanson, told CNN Business.

"The world has changed."

The question for Netflix (NFLX), once the untouchable king of streaming, turned from "what's next?"

to "now what?"

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Investment strategist explains why Netflix is ​​still a good bet 1:14

"How do they turn the ship around?"

Netflix said on Tuesday that it lost 200,000 subscribers in the first quarter of 2022. Now, 200,000 of 221 million global subscriptions may seem like little more than a rounding error, but consider that the service was expected to add 2.5 million new users. in the first three months of the year, a low figure that had already spooked investors in January.

As if that wasn't bad enough, Netflix said it expects to lose another 2 million in the current quarter.

The company blames many factors for its subscriber exodus, including competition and widespread password sharing.

In its letter to investors on Tuesday, Netflix also pointed to "macro factors" that are affecting many companies right now, such as "slow economic growth, rising inflation, geopolitical events like the Russian invasion of Ukraine, and some ongoing disruptions from covid."

Leaving Russia alone cost the company 700,000 subscribers, Netflix said.

But even without that, the company would still have missed its own expectations by almost 2 million.

Zak Shaikh, vice president of programming at research-based media firm Magid, believes Netflix needs to answer two questions to change its current narrative: "How do they turn the ship around and start growing subscribers again, and how do they generate more subscribers?" subscription revenue?

"I think it all boils down, as it often does, to content," Shaikh told CNN Business.

"Netflix just has to remember that what made it so special was that it had the type of content and the volume of content that you couldn't get anywhere else. That's the value proposition they need to come back to."

But it's not as easy as flipping a switch, no matter how many billions Netflix spends courting top talent and funding spectacular productions.

If creating great content was easy, everyone would be doing it.

"Spending more doesn't equal success," Nathanson said.

"Everyone is spending more."

Another way Netflix could boost revenue: Restrict password sharing.

The company alluded to that on Tuesday, saying it will focus more on "the best way to monetize the exchange" in terms of passwords.

And last month, Netflix said that for the past year, it has been working on ways to "allow members who share outside of their home to do so easily and securely, while paying a little more."

"While we won't be able to monetize everything right now, we think this is a great opportunity in the short to medium term," the company said on Tuesday.

But making customers pay for the privilege of sharing their passwords could actually have a "negative impact" on the company, according to Nathanson.

Netflix already raised prices earlier this year, and any additional costs could alienate its base, which is already strapped for cash due to the economy and a glut of streaming options.

"Is there going to be a shift to cheaper plans and/or will the goodwill that Netflix has generated just go away?" Nathanson said.

Stranger things are happening on Netflix

Another area that could help Netflix: advertising.

Historically, CEO Reed Hastings has been very reluctant to add ads to the service.

Not anymore.

"Think of us as being pretty open to offering even lower prices with advertising," Hastings said during Tuesday's post-earnings call.

A cheaper level of advertising is already being added throughout the streaming market.

Disney, Hulu and HBO Max, owned by CNN parent company Warner Bros. Discovery, already offer such options.

It makes sense that Netflix would eventually join them, Shaikh said.

"We know that consumers don't have a problem with advertising as long as it's a cheaper option and there's also a commercial-free option," he said.

"That said, with advertising comes certain content restrictions, and that's something they might want to avoid. Ultimately, they need to make sure they have the content that consumers want, and then make sure they monetize it in the best way possible."

Getting Netflix back on track is not only important to the company and its investors, but to all of streaming.

The platform is synonymous with the industry, so if Netflix struggles, that raises questions about streaming as a sound business model.

On Wednesday morning, shares in companies that have built much of their business around streaming, including Disney, Roku (ROKU), Warner Bros. Discovery and Paramount, fell along with Netflix.

Netflix said Tuesday that it will continue to improve the service.

And it remains at the top of a market that is changing the way people consume entertainment, so it still has that going for it.

“This is just the reality check that is inevitable for an industry leader facing multiple new market entrants,” Shaikh said.

Netflix streaming

Source: cnnespanol

All news articles on 2022-04-21

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