Is Netflix Losing Its Crown?

In any other year, it would have been the biggest story of the Oscars, but a streaming service scooping the Best Picture gong for the first time was overshadowed by the incident comedian Rosie Jones perfectly distilled as “Man 1 makes inappropriate joke. Man 2 responds inappropriately.”

The coverage the Best Picture win did receive was framed in relation to Netflix missing out, for it was CODA, distributed by the plucky underdog* Apple TV+ that beat frontrunner, The Power of the Dog (*only joking - you don’t get to be a plucky underdog if your company’s valued at $3 trillion).

It’s the latest in a series of less than positive news stories for Netflix. In January it reported its lowest year of global subscriber growth since 2015 and earlier this month it announced another £1 UK price hike, taking its standard plan over £10 for the first time (to £10.99 - the basic plan is now £6.99, the premium plan now £15.99).

It also shared details of experiments to try and monetise password sharing, testing (in Chile, Costa Rica & Peru) the option to pay - slightly less - for sub-accounts for people outside your household and the ability to convert a profile into a standalone account.

Unless coupled with much more aggressive comms to those Netflix suspects of password sharing, I’d be surprised if the lower price point convinces many of those currently enjoying Netflix for free to start shelling out. It also introduces the risk of households who are currently both paying full whack for separate accounts to cancel one and start sharing an account.

The current Netflix content offer is also looking a bit weak. This is partly down to a bit of a lull in standout originals as a result of Covid-related production delays, which hit Netflix a bit later than some other players due to the amount of content they already had in the locker that they were able to eke out through 2020 and the first half of 2021. The tentpole titles that have dropped this year haven’t lived up to expectations (Inventing Anna is, let’s be honest, a turkey) and they’ve been having, let’s say mixed, results with reality formats (Too Hot To Handle, Sexy Beasts, Is It Cake?)

Netflix has also lost some of its evergreen catalogue (e.g. the Marvel Defenders series to Disney+, Friends to HBO Max in the US). At the same time, it’s had to get more ruthless on cancelling series which aren’t going to help the bottom line (e.g. critically-acclaimed horror series Archive 81, which was cancelled after just one season). Squid Game suddenly feels like a long time ago.

By contrast, Disney+ is currently enjoying something of a purple patch. Global subscriptions are up 35m year-on-year to 130m (nearer 200m if you include Hulu and ESPN, which Disney also owns). Available in 64 countries (to Netflix’s 190), they have plenty of headroom on global expansion and have just announced launch dates for 42 new countries and 11 territories.

Its monthly price of £7.99 compares favourably with £10.99 for Netflix’s standard plan, and its cheaper annual plan (which works out at £6.66 per month) feels like a smart option at a time when people are reviewing their monthly outgoings.

Its content offer is looking strong, with juggernaut franchises (Star Wars & Marvel), evergreen content like The Simpsons and the Pixar movies and talked about TV like Peter Jackson’s Get Back.

It’s also playing a blinder on the marketing front with its latest ‘Stories you’d expect + Stories you wouldn’t’ campaign broadening expectations of what you’ll get from the house of mouse whilst tactically using the otherwise redundant Star brand to reassure parents their kids won’t inadvertently stumble into The Walking Dead.

Netflix tend to market individual titles rather than the service as a whole, which is tricky if you’re going through a bit of a lean spell on cut-through content. I’d love to see a new brand campaign for Netflix as it feels difficult to say what Netflix stands for in 2022. The premium but edgy persona established by Netflix’s early roster of originals (House of Cards, Orange Is The New Black, Narcos) and acquisitions (Breaking Bad, Black Mirror) feels like it’s dissipated under the sheer weight of mediocre content.

The addition of a rail of mostly generic casual games to the mobile app UI (e.g. Dominoes Cafe, Card Blast Casino, Wonderputt Forever) feels like it’s further eroded the premium feel Netflix worked so hard to build out of its DVD-by-mail/acquired catalogue roots and it has ended up ceding more of the high-end ground to Disney and HBO Max in the US.

Elsewhere in the streaming forest, Amazon are quietly marching on. The bundling of its video service with Amazon Prime makes an apples and apples comparison on subscribers impossible. It claims 175m Prime members streamed video in the last financial year. However, its originals offer isn’t currently as strong as Disney or Netflix and Amazon Video execs will be crossing their fingers and toes that their $465m Lord of the Rings prequel does even better business than their last Game of Thrones-esque fantasy epic, The Wheel of Time, when it finally drops in September.

Amazon is also hoping to bolster its catalogue and remake/reboot/spin-off options through the acquisition of MGM (assuming the FTC doesn’t make a late move to block the deal), which includes the mighty Bond franchise, although it won’t have full control due to a long-standing arrangement with the Broccoli family. Regardless, I expect them to keep throwing money at their streaming service until they get it right. It’s the Amazon way.

Apple, meanwhile, still looks to be going for quality over quantity with Apple TV+. This enables it to really concentrate its marketing firepower on a small number of titles and punch well above its weight in terms of PR. However, that doesn’t necessarily translate to subscribers. Apple don’t break down numbers for its subscription services, but global Apple TV+ subs are likely to be in the low tens of millions, even with the leg up of bundling a year’s free trial with new Apple hardware.

And in the blue, red, yellow and green corner, Google continues to do the hokey cokey on its TV streaming offer. It announced last week that it is adding 4,000 episodes of free, ad-support programming to YouTube in the US (lead title: Hell’s Kitchen, although only the early seasons). This comes just two months after it announced that it was shutting down YouTube Originals (which it launched in 2016 and were made available on an ad-supported basis in 2019).

Google says it’s planning to surface the new (old) content via the ‘Movies and Shows’ area of the YouTube UI, which has been predominantly Buy or Rent content to date (they have offered ad-supported films since 2018). It will be interesting to see whether they can persuade viewers to make this a destination when they’re looking for something to watch. In the US Google also have a dedicated ‘ YouTube TV’ app and they can also leverage promotion real estate in the Google TV interface, which is coming to more connected TVs in 2022.

So, is this the beginning of the end for Netflix? I’d suggest not. Whilst subscriber growth might have slowed, it still added a respectable 18m subs last year and the rest of the 2022 content slate is looking brighter. In Drama, Bridgerton Season 2 has arrived in the nick of time, Season 4 of stalwarts Ozark and Stranger Things are now just around the corner and Season 5 of The Crown is due in the autumn. In Factual, there’s a chance Obama might turn out to be the new Morgan Freeman of nature narrators with the release of Our Great National Parks in a couple of weeks. And in Film, there’s the high-budget ($200m!) Ryan Gosling action thriller The Gray Man, the new Adam Sandler, Hustle and the sequel to surprise 2018 hit, Knives Out, all due this year.

Netflix also have the option of taking some plays out of Disney’s book, whether that’s locking subscribers in for longer with a cheaper annual plan or introducing an advertising tier. Their CFO recently said “never say never” on introducing advertising, although I’d be surprised if they took this path in the near term. It slightly goes against the Netflix philosophy on minimum friction for viewers plus their content catalogue is a bit less straightforward for advertisers and they’ve had more than their share of controversies in the last few years (e.g. 13 Reasons Why, Cuties, Dave Chapelle).

Whilst it’s undoubtedly going to continue feeling the squeeze from its SVOD (and increasingly AVOD) rivals, most of whom are able to raid the coffers of other verticals to subsidise their investment in video content, Netflix is run by some smart cookies, who aren’t going to cede the crown without a fight.