By the end of the year, Netflix should launch a cheaper package with advertising. But the streaming platform also plans to charge for account sharing to stem its loss of subscribers and its fall in income.
Times are tough for Netflix. After having reigned supreme over video streaming since its creation, and despite its success during the confinements, the famous platform has lost subscribers this year, which has led to a significant drop in its income. A delicate situation, accentuated by the rise of serious competitors like Disney +, which forces the company to review its economic model, obviously more fully adapted to the current market. To better meet consumer demand and reconnect with its insolent growth, Netflix is therefore preparing a small revolution, with three major changes: first, the arrival of a cheaper offer – less than 10 euros per month – financed in part by advertising; then, the broadcast of live broadcasts, based on the model of traditional television and platforms such as Twitch; finally, the sharing of accounts, a common practice, tacitly tolerated until now, could become chargeable. Something to profoundly change the game by upsetting many habits.
Netflix: increasingly tough competition
The period is not rosy for Netflix: in 2022, for the first in its history, the streaming video platform lost subscribers. As explained The Express and The echoes, the SVOD (subscription video) service thus had 200,000 fewer customers in the first quarter of 2022 than in the last quarter of 2021 – and even 600,000 in its native lands, in the United States and Canada! – while he hoped to recruit 2.5 million more. A historic underperformance – especially after the record rise during confinement – which led to a spectacular 23% drop in its stock market share in the hours that followed the presentation of its quarterly results, on April 19. And the situation has gotten even worse since, as the platform lost 1 million subscribers during the second quarter of 2022, as it announced in the statement to its shareholders July 19.
The loss of Netflix subscribers has three main causes. First, the company is said to have lost some 700,000 customers in Russia in the space of a few weeks, following the suspension of its service as a sanction for the war in Ukraine. Without this measure, it was counting on 500,000 additional subscriptions compared to the previous quarter, it underlines in its press release. Then and above all, while it has long been almost alone in this nascent sector, the video platform has had to face increasingly tough competition for several years, with the proliferation of streaming services and, above all, the arrival of behemoths like Disney+ or Amazon Prime Video, which have gained solid market shares in a short time. Finally, to continue to produce original content – its great specialty which has contributed to its popularity – Netflix has constantly increased its prices around the world: thus the basic subscription, with a single stream in SD ( standard definition) is now at 8.99 euros per month in France – against 7.99 euros when it arrived in 2014 – while the top-of-the-range formula, with four HD or 4K streams, today reaches 17.99 euros against 15.99 euros in October 2021.
Consequences: many customers – acquired or potential – have gone elsewhere and many are now indulging in account sharing to reduce costs, either between relatives or with strangers, via specialized platforms (see our article). A practice against which Netflix will try to fight, by proposing an adapted offer via the addition of additional profiles for a fee, which is very likely to have a negative effect in the long term on its subscriber base, especially if the competition authorizes or tolerates it without additional cost…
Netflix: a cheaper subscription with advertising
Hence the surprise announcement in the spring of 2022 of a paradigm shift. Thus, while he had totally refused to do so since the beginning of the company, Reed Hastings, the co-founder and co-director of Netflix, officially declared in May that the company was now open to the integration of advertising in its content: a new source of income that would allow it to offer cheaper subscriptions – while maintaining advertising-free formulas – so as to align itself with the competition and curb the flight of subscribers. However, this “revolution” will not happen overnight because the platform will have to set up an advertising agency worthy of the name while adapting its service to the integration of spots. But given the situation and the pressure from its shareholders, it seems that Netflix is making great strides to offer a formula with advertising as soon as possible, by the end of 2022.
And if nothing official has yet been announced, rumors have been circulating for several months on the terms and price of the formula with advertising. Thus, according to a reliable source quoted by Bloomberg in an article published on August 27, Netflix should offer a subscription with advertising at a price between 7 and 9 dollars per month – which could give between 6 and 8 euros per month in Europe, depending on the rate of the dollar and commercial policy of the platform. A fairly high sum – we could have hoped for much less… –, but which would correspond to the “low cost” formula with advertising that Disney+ is preparing, and which should be marketed at 7.99 euros per month.
Also according to Bloomberg, Netflix could include around four minutes of ads per hour, which would still be reasonable – and bearable by users, even if it would be eight minutes on a two-hour movie… Ads would run before and during program viewing. , but not afterwards, for obvious reasons of efficiency. As a reminder, as recalled by Arcom – the authority resulting from the merger between the CSA and Hadopi –, regulations for television in France imposes a limit of 9 minutes of advertisements per hour on average – and 12 minutes during prime time, between 9 p.m. and 10 p.m., for example.
In addition, the content accessible with this subscription formula would not be downloadable to be watched offline: a way of maintaining a tangible advantage over the more expensive formulas. According to forecasts, the integration of advertisements could bring in some 8.5 billion dollars per year for Netflix from 2027. A nice windfall, which would allow the platform to find colors against the competition. The ads would also be managed by Microsoft, with whom Netflix signed a partnership a few weeks ago.
If this strategic and commercial evolution seems both desirable and inevitable, it will once again raise the question of profiling. Indeed, by knowing exactly who is watching what, thanks to its user profiles, Netflix knows perfectly the tastes of its subscribers, which will allow it to very precisely target the advertisements broadcast with its content. An undeniable asset for offering its services to advertisers. But that may not be to everyone’s taste, especially at a time when the tracking and confidentiality of personal data are very sensitive subjects… Still according to the Bloomberg source, the advertisements would not be targeted… at least, in first, at the launch of the formula. Nothing says that the platform and its client-partners will then be able to resist the temptation…
Netflix: live broadcasts like on Twitch?
The other major change that Netflix would prepare would be the broadcast of live content, in live streaming. At least that’s what the platform would have confirmed a few months ago at Deadline, a media that follows the news of American studios. According to this confidence, Netflix would offer unscripted shows and stand-up type shows. New exclusive content that would look like what you find on popular platforms like Twitch – which is owned by Amazon – but also like you find on traditional TV channels. But it is not impossible that Netflix also enriches its live catalog of sports programs, as Amazon offers with Prime Video, in particular Ligue 1 football matches, or even, who knows, cultural events (shows, concerts, etc.) ), the goal being, again, to stop the hemorrhage of subscribers while attracting a new audience. However, unlike the low-cost offer with advertising, the deadline for live is still vague and, to say the least, distant. And if it is confirmed, there is little chance of seeing it appear before 2023, the time to set up all the necessary infrastructure and design the programs.
Netflix: charging for account sharing
The other major lever on which Netflix will play in the short term to straighten out its finances is account sharing. Until now, the platform tolerated that an account be shared by several people from the same household. An essential condition for several members of a family watch different content simultaneously, on television, computer, tablet or telephone, possibly in different places, which in particular allowed children relocated – for work or studies – to take advantage of their parents’ subscription. But, as we know, account sharing has spread well beyond official households, and many friends share a subscription to reduce their costs.
If Netflix let it go during its good years, it could be quite different very soon. The platform has fairly simple means of identifying and locating simultaneous connections to the same account – notably via the IP address. And it is already planning to offer a special formula, with additional profiles, marketed at an even higher price – around 3 euros per added profile. It has already launched various tests in this direction in several Latin American countries (Honduras, Argentina, El Salvador, Guatemala, etc.). But without finding the magic formula, obviously, because the practicalities are quite complex. One thing is certain, however: after years of tolerance, Netflix will charge for account sharing as soon as the ideal formula is found. What could happen by the end of 2022, everywhere in the world, and therefore in France.