Today’s Cache | Netflix’s problem is not password sharing 

Today’s Cache is a column on the happenings in the world of tech and corporations.

Updated - April 21, 2022 09:05 pm IST

Published - April 21, 2022 05:36 pm IST

In yesterday’s column, I shared how Netflix was haemorrhaging subscribers. The streaming giant lost 200,000 customers in the March ending quarter, the first time it has shed subscribers since 2011.

The company lost about 700,000 customers in Russia after it decided to pull out from the country following the Ukraine invasion. The FAANG company is projected to lose another two million customers in the June ending quarter. The service used to add roughly about 25 million users annually.  

Shares of the streaming giant is already down this year. On the day results were announced, the stock tumbled as much as 27% to $256 in after-hours trading.  The drop extended into Wednesday’s trading session as shares fell 35%, recording their biggest drop since 2004. That shaved off $54 billion from the company’s market capitalization.

Reed Hastings, the company’s co-founder, in his note to shareholders, outlined four reasons for the loss of subscribers. One of those four reasons stands out. And that is: competition from traditional media houses.

“Over the last three, as traditional entertainment companies realized streaming is the future, many new streaming services have also launched,” Hastings said in the letter.

This is the key area of focus for the company as Disney and HBO are offering content that is on par with Netflix at a competitive price. The duo’s subscriber base is also growing.

HBO shared in January that its streaming service HBO Max and cable channel HBO ended 2021 with a combined 73 million subscribers. The streaming service has also expanded into 46 new countries. The AT&T-owned company’s customer base is relatively fewer than Disney’s, which is about 118 million as of December 2021.

But combined, the two have more subscribers than what Netflix has now. They are growing while Netflix’s pool is shrinking. The duo also has the advantage of traditional TV audience. That gives them a broader reach.

If that is not enough competition, Amazon is flashing its newly bought toy from the side. The retailer’s $8.5 billion deal to buy television studio MGM is now official. That will give the e-commerce giant the James Bond franchise, Rocky, The Silence of the Lambs and Legally Blonde titles.

These are something Hastings must ponder on deeply instead of password sharing. If the service offers high-quality content consistently, the problem of password sharing wouldn’t arise. Good content showing up intermittently on the app makes the subscriber re-think whether it is worth dropping that $10 into Netflix’s kitty every month.

Bringing in ads and asking people to pay $2 less won’t bring subscribers back. In fact, it may back fire as a large number of people using Netflix flock to the service because of the on-demand, ad-free content it offers.

Netflix is facing a Goliath it thought it killed years ago. And the streaming giant is no longer the young David. The company has to deeply re-think its strategy and build a new streaming model to compete.

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