Recently Netflix announced an ad-based tier that is 55% cheaper than it’s standard tier, and after failing to get more than 2% of it its users to join it, it caved and lowered the price from $7.99 to $6.99
My opinion: the fact that Netflix has introduced ads at all is a death knell for its business, at least as far as future growth is concerned.
The whole point of Netflix from the beginning was to escape the ad-based TV model. It offered a subscription instead, so you could watch whatever you wanted in peace, whenever/wherever you wanted. It enjoyed incredible growth for years since it essentially had found a way to declare open season cable bundles, etc. and feast on its market share. And feast it has.
But Netflix has ultimately become a victim of its own success – having seemingly hit a ceiling on its subscriber base (I mean how many households dont have Netflix?) and with tons of other companies now competing in the space, it’s realizing that the only way to grow revenue from this point on isn’t to increase the revenue generated from subscriptions (it can’t, unless it wants to raise prices – which thanks to all the competition, would be a horrible move and cause further loss in users) but to increase the value of viewing time that each show/movie gets.
For example: I have a Netflix subscription and pay $15/month. Right now I can sit down in front of my TV and literally watch 10 movies in a row. I can watch movies and shows ALL DAY LONG, but Netflix doesn’t reap any added benefit the more movies I watch. Whether I watch 2 hours of tv per week or 20, I’m still only giving Netflix the $15/month. It’s an amazing deal for me, and that’s why Netflix (and many other streaming services) are so popular. Woohoo!
But since Netflix has hit a ceiling in subscriber growth, they’re realizing that if they want to avoid essentially becoming a utility company, they now need to somehow increase the value of the minutes watched. And the only way to do this – you guessed it – is to pump ads into all the shows and movies.
Great, so Netflix has begun solving one of their revenue growth problems. How is this a death knell for Netflix?
Answer: don’t you get it? Netflix has failed to come up with any solutions to their stalling subscriber growth, to the point that they are willing to start going backwards and become the very thing they once hated. They are giving in and realizing that they now just have to become more like cable – blasting ads in between all of their content – to not stagnate in revenue.
Netflix is basically shouting “We have given up – we are finally forced to admit that our business model is flawed, and that we are forced to become more like cable, the very thing we once set out to overcome.”
Unsurprisingly, less than 3% of their users have agreed to fall for this new strategy and join the blast-me-in-the-face-with-ads plan.
TLDR: NFLX r fuk
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.