The opportunities and challenges faced by Netflix in a digital world
Netflix- A history:
Over recent years, Netflix has become one of the world’s most popular video streaming services. It took them only a decade to raise their revenue by 28 Billion Dollars. The streaming industry is growing year upon year, with a predicted revenue growth of 9.48% annually over the next 4 years, as people switch from the purchase of “physical video transactions”, which declined by 4.9 billion between 2011 and 2021, to streaming services, which allow us to watch an unlimited number of shows for a fixed monthly fee. Netflix must attract a wide range of audiences by implementing effective marketing techniques to overcome the intense competition in the industry.
Competition:
Over recent years, Netflix has witnessed a “flurry of competition grow”. Should they be worried? Between 2019 and 2021, netflix’s share of total demand dropped by a drastic 15%. Could the flurry of new entrants to the streaming industry be a reason behind Netflix losing around 1.3 million subscribers in the US and Canada?. The perks offered by some of these industry giants, such as Amazon Prime who allow subscribers to indulge in “free audiobooks and unlimited music” along with an array of shows, all for the same monthly subscription fee Netflix charges, may make Amazon Prime more appealing than Netflix.
Disney Plus: A worthy contender?
Could Disney+ overtake Netflix? Its data analysts sure seem to think so. In fact, they are confident this will be achieved within the next year. Disney+ boasted a new 14.4 million subscribers in last year’s second quarter, whilst Netflix suffered subscription losses in the same period. Why might this be? Perhaps the selection of shows available on Disney+, such as marvel movies, several of which were deemed as one of the “top 10 movies of the year” in recent movie reports, are more enticing than those offered by Netflix.
Overcoming its challenges:
How can Netflix overcome challenges posed by these competitors? Many argue the only way for Netflix to stay competitive is by introducing adverts to its service. Adverts can provide streaming services with major financial benefits, for instance, Hulu garnered an impressive $1.4 billion in advertising revenue in 2020. However, those insisting that advertising is Netflix’s only way of overcoming competition fail to recognise the risk that “if introducing ads resulted in 5% more customers leaving, it would make the strategy uneconomical”. Since the absence of adverts is “one of the biggest reasons Netflix is praised” it would seem logical to think their implementation could do more harm than good.
Alternatives to advertising:
Alternatively, to overcome the challenge of competition, one may propose that Netflix should introduce more original shows and more live TV to maintain their subscriber base, since a survey revealed that across all streaming services, television shows are the most popular form of content. Although the survey’s fairly small sample size of 181 may impact its reliability, the proposal to add more TV shows would still yield benefits as it would lead to a wider variety of options for viewers, increasing the likelihood they would be content with service Netflix provides and reducing the chance of viewers switching to alternative streaming service providers.
The threat of piracy:
Due to peer-to-peer networks such as torrents, Netflix is threatened by video piracy. It is reported that Netflix loses out on a whopping $192 million each month from piracy and password-sharing, which soars over the amount lost by Amazon Prime and Hulu: only $45 and $40 million respectively. The black market is able to download any show offered by Netflix, and most people in their twenties “download content for free” in some way. If Netflix does not act fast to reduce these losses, they could lose their dominating position in the streaming industry.
Opportunities:
Roughly 11.7 million people in the UK were furloughed from their jobs throughout the pandemic, and as a result, the nation spent an average of 90 minutes longer watching audiovisual content each day- a huge opportunity for Netflix. Many couldn’t maintain physical contact with loved ones during the pandemic. How did people cope with this? Watch parties were certainly one way . These allowed us to watch shows with friends who were in different locations. To address this increase in demand for watch parties, with use of digital technology, Netflix updated the watch party feature to “make it user friendlier”, likely contributing to its number of paid users jumping by 15.77 million in the first quarter of 2020.
More money to be made?
Netflix took the opportunity to compete with TikTok by copying their strategy with a “fast-laughs” feed on the mobile app, which was a “vertical video feed” with “buttons to react”. However, this faced heavy criticism, being deemed as a poor copy of TikTok. A more effective way for Netflix to increase revenue could be the offer of an annual subscription, with discounts, that’s cheaper overall. This would discourage users from paying for only one instalment of a monthly subscription by binge-watching all the shows they love before cancelling their subscription, which causes Netflix to lose a significant amount of revenue.
Tapping in:
The majority of the population in countries where Netflix was most recently introduced do not regularly use the service. Netflix would be able to increase revenues by finding a way to rectify this, one potential solution being an increase in expenditure on advertising in those countries, making use of digital platforms to appeal to their target audience. Furthermore, although Netflix currently offers shows in over 60 different languages, the world has thousands of languages. Since language determines consumer preferences regarding show watching, anyone who doesn’t speak those 60 languages could be deterred from watching Netflix. Therefore, Netflix would gain revenue from increasing its language options.
All things considered, Netflix should use digital technology to address their opportunities of increasing revenue through attracting more viewers in countries it is new to by means of advertising through social media, offering an annual subscription, using digital technology to advertise the financial benefits of this, and offer the opportunity to watch shows in more languages. Introducing new shows and finding an effective way to clamp down on password sharing would help address some key challenges it faces.
