It’s not subscribers that are the problem Netflix, you’re just bad at bundling, pricing and charging

Netflix has reported a significant drop in subscribers – the first time it has had a net loss of subscribers in 11 years. In the first 3 months of 2022, its subscriber base dropped by 200,000, and it predicts it will lose 2 million more before the summer. Part of this loss was due to backing out of Russia (700,000 subscribers), but Russia aside, the real pain came in the shape of 600,000 households de-subscribing in the US and Canada following a price increase. That price increase also affected the UK.

The firm’s revenue in the first quarter of the year was up 9.8% compared to the first quarter of 2021. But profits fell more than 6% to $1.6 billion. Subscriber losses were offset by sign-ups in growth markets such as Japan and India, and the company said it was considering new sources of revenue such as advertising.

Omnisperience’s View

Rather than consider whether those price rises were wise in the face of the biggest household squeeze in a decade, Netflix instead blamed its subscribers. It estimates that 100 million households are breaking its rules on sharing passwords – something it vowed to crack down on while warning more losses are coming.

Boss Reed Hastings said: “When we were growing fast, it wasn’t a high priority to work on [acount sharing]. And now we’re working super hard on it.”

According to Kantar, in the UK alone, 1.5 million households cancelled streaming subscriptions in the first three months of 2022 as the cost of living increased. The firm said more than a third of those were directly due to “money saving”.

We spend our working lives here at Omnisperience trying to get CSPs to become more customer centric and think about what customers actually want. This is, after all, the experience economy. While CSPs are slowly waking up to how important this is to their business models in both the B2B and B2C sectors, and moving beyond lip service to make meaningful moves on customer centricity, it is staggering to hear a retailer of entertainment – because that’s what Netflix is – saying that they will carry on with a ‘growth’ strategy that’s causing their subscriber base to contract in their biggest markets.

The hubris of thinking you can put up prices, constrain customers with T&Cs they don’t agree with, and behave like you have a natural monopoly is staggering. Instead of trying to figure out how to stop households sharing their passwords with others, maybe they should consider how to make their pricing simpler, more customer-centric and more affordable?

To be fair, part of this is outside Netflix’s control. The media market still hasn’t come up with a simple, global pricing structure because of the antiquated and labrythine rights system.

But price variance by country in Netflix’s price plans is remarkable. This is illustrated quite nicely in this article where Rebecca Moody compares the number of titles available against the price paid. Her team found Slovakia, Bulgaria, Lithuania, Estonia and Latvia have the biggest libraries; Turkey, Pakistan and India get the best value for money, with above-average libraries and cost-effective pricing. It’s no wonder that this is where Netflix is experiencing growth.

Country Price for Basic Percentage increase Price for Standard Percentage increase Premium in Euros Percentage increase
Pakistan €2.25 -72% €4.00 -60% €5.50 -54%
Slovakia €7.99 €9.99 €11.99
UK €8.41 +5% €12.02 +20% €14.42 +20%
US €9.23 +15.5% €14.32 +43% €18.48 +54%

This situation is even worse when you look at cost per title. While it’s often thought that the US has the most titles in order to justify its hefty price point, this isn’t true. It currently has 5,800 titles compared to Slovakia’s 7,400 and Pakistan’s 5,800. When considered at price per title, the US pays 76%, 72% and 70% more than Pakistan. Affordability then becomes an issue: wages in Pakistan are lower on average than in the US, UK or Slovakia. But this can also be misleading because the real killer is discretionary spending – what households have left to spend after paying taxes and essential bills – and this is what’s under sustained pressure in the US, UK and other European countries.

Our opinion is that open sharing of passwords is wrong and illegal, but if you pay for five slots and five people are using them then who is Netflix to police where these people live and what constitutes a “household”. Netflix also has to get over its self-image as a utility derived from 20 years of easy growth. Electricity is a utility. Broadband is a utility. Bridgerton is not.

Think about it, Netflix is obsessed that you might have given one of your 5 available slots to granny, but hasn’t got its head around personalised pricing, unbundling or pay-per-view. Amazon, in contrast, offers far more choice in terms of how to buy content. Neither have innovated around personalised pricing or the concept of the modern household. And Netflix’s assertion is will stop password sharing is at odds with its interest in introducing advertising – the bigger the audience, the bigger the advertising revenues. The inevitable conclusion is that streamers such as Netflix are even worse at bundling, pricing and charging than CSPs, and even further behind when it comes to bundling and pricing strategies. And that takes some doing.

Teresa Cottam
Teresa Cottam

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