The news broke last week in the wake of Netflix’s latest quarterly results that the SVOD service had suffered at net loss of 200,000 subscribers globally, exacerbated by the company’s decision to switch off the service in Russia, effectively causing the loss of 700,000 subscribers overnight.
The other major factor is of course the massive boost to subscribers Netflix enjoyed in the early stages of the pandemic, which in turn has inevitably resulted in a loss as the market begins to normalise down the line. This point doesn’t serve to absolve Netflix of any issues going forward however as a global cost of living crisis, combined with more SVOD subscriptions available to customers than ever, will make many consumers rethink their monthly spendings on TV. Netflix itself is aware of this, warning of a further loss of two million subscribers this year, with the shockwave of these announcements making the share price of the SVOD drop by 35 points.
There are some hopeful quick wins Netflix plan to deploy to bring back growth to its subscriber base, including a potential crackdown on password sharing that has already entered a trial form in Chile, Costa Rica and Peru. Alongside this the company has hinted at a more palatable priced subscription tier being offered that is supported further by ad revenue. This would mark the first time adverts will have come to the platform. With the SVOD utilising one of the most industry lauded recommendation engines for its content, the potential to leverage this for adverts could be a game changer for the digital ad space.
Principally however the main draw for Netflix over the years has been its content, historically its high profile acquisitions but more recently its growing list of Digital Originals. Show Tracker reveals over the past TV seasons the full extent of the growth in Netflix’s scripted TV series output, with its growth leading up to the 2020/21 season putting it well ahead of its once main rival, Amazon, in terms of commissioned SVOD TV series.
While the 2020/21 season caused a reduction in new commissioned TV from most services as the COVID-19 pandemic in turn disrupted TV production, Netflix’s total digital original output did not drop much at all, suggesting an ever larger jump in originals was originally planned. Its foreign language original output has consistently been higher than its English language output, making the success of runaway hits like ‘Squid Game’ almost an inevitably in the long run.
Comparing the total number of English language scripted commissions from Netflix with other US SVODs shows how far the service was ahead of both its newer and longer term rivals in terms of scripted commissions in the 2020/21, although its lead in that season was nonetheless a far cry from a time where Netflix was commissioning more digital originals than all of its US SVOD competitors combined.
This slip in Netflix’s lead has slowly started to become more dramatic in the current season as its newest rivals from US Studios have begun to further ratchet up their digital original output, which in their early months were largely propped up with acquisitions of UK shows and co-productions. The fall season that just passed in 2021 saw the biggest leap in studio SVOD commissions yet, which for the first time took over Netflix’s overall original volume.
While no individual studio SVOD in the US has overtaken the total Netflix output, their approaches in international markets outside the US has made them much more competitive against Netflix. While Disney+ only commissioned five new originals in the 2021 fall season, internationally the SVOD is home to virtually all titles distributed by the studio, whether they are commissioned by Hulu or its linear channels such as ABC, FX or Freeform. As a result of these high levels of vertical integration from Disney through its Star add-on, international audiences saw as many digital originals come to Disney+ as Netflix.
The massive reaction of the stock market to the latest Netflix news has forced the leadership to consider a pivot both towards advertising and its approach to account sharing, but even outside of these factors many of the SVODs owned by US studios are starting to gain traction in sheer volumes of scripted content to be in a position to challenge Netflix even further with their services. Many of these competitors are either cheaper than Netflix, offer a cheaper ad-fueled option, or both. With Netflix engaging in far less third party acquisitions than it historically has to supplement its originals, particularly as some of its old suppliers would rather save their content for their own services, the real alarm bells shouldn’t be sounding from their small dip in subscribers, but how they can regain the lead in the digital original arms race. Account sharing may be costing potential subscribers, but without a large supply of compelling originals, even those users sharing passwords across households may begin to look elsewhere.