If there is a dominant actor Within the streaming sector, it is undoubtedly Netflix, which accounts for 50% of the market.
Despite this heavy weight, its shares are down 62% this yearlargely due to the video streaming company’s disastrous first-quarter earnings.
The company sees a flight of subscribers. It lost 200,000 net subscribers in the quarter and in this quarter it has been abandoned by almost a million subscribers.
Initially Netflix got a competitive advantages of distribution costs because its digital distribution business does not depend on the link with telecommunications as happens with HBO cable subscribers.
With this, I got go directly to the customer. That has been the key to leading the market together with attractive audiovisual content.
However, the business model assumes structural problems hard to fix.
First, the content is characterized by a value validity of four years which is how long your users are attracted to a newly created content.
And that is a problem. And it is that it constantly forces keep spending high on content creationbeing today its main problem.
Subsequently, and linked to the previous problem, the dropout rate. And it is that consumers are increasingly wary of rising prices for streaming services and are increasingly likely to cancel a service when a favorite series ends.
The competitive cost advantage that we had mentioned was a good starting point, but the problem is that it is replicable by other platforms.
Hence the third problem: the increased competition. Not just existing platforms, more traditional media companies are running into subscription business.
We are not just talking about HBO or Disney+, which are penetrating the market excellently, but modern monopolies with much larger cash reservesincluding Google and Facebook, as well as Amazon and Apple.
For example, Google has no problem spending content creation because it is given by the community. Hence its leadership as a search engine or YouTube, positioning its red effect as a competitive advantage.
Netflix without account with red effectits positioning starts with a huge expense in content that, in turn, is its problem.
The initial vision of the Netflix era shoot up spending on content for subscribers to increase exponentially.
Positioning itself as the unquestionable market leader, then raise prices since it is based on an assumption that the quality of its contents led to an inelastic demand. And later gradually reduce spending on content.
It has been seen that subscribers if they are sensitive to price changes and that the competition is changing high value content, so Netflix’s strategy is changing.
Netflix CEO Reed Hastings has come up with two solutions: reduce password sharing and explore a lower-priced ad-supported subscription tier.
For now, little is known about this ad-supported subscription, but it is assumed that would take place throughout 2023 and it would not affect the current clients of the platform.