The subscribers-at-any-cost model is no longer feasible
By Kate Bulkley
For Broadcast August 24, 2022
As consumers tighten their belts, streamers will have to embrace more traditional business models to survive, says Kate Bulkley
There are many signs that the superiority of the Netflix subscription-only streaming business model is well and truly over.
Netflix’s shares have fallen 62% this year, ending the company’s decade-long growth spurt. It lost subscribers over two consecutive quarters, with 1 million leaving in the second quarter alone – although the success of the newest series of Stranger Things prevented the predicted loss of 2 million.
But streaming itself isn’t dead – just Netflix’s add-subscribers-at-any-cost approach. Streaming is simply having a course correction.
Netflix’s model thrived pre-Covid, and later when we were stuck at home with nothing to do but binge-watch.
But now a cost-of-living crisis and a pending recession that will slow the advertising market are creating a new reality for Netflix and its peers. In the UK alone, 1.6 million online video subs were cancelled in the second quarter of this year, according to Kantar Media.
Alongside that, competition is growing as legacy media companies, with big catalogues and lots of commissioning and distribution nous, get into the game. The streaming model that is emerging looks a lot like those we know from legacy film and TV. Indeed, Disney has now overtaken Netflix as the top global streamer with 221 million subscribers, as it leans into its big-name franchises like Star Wars and Marvel.
Netflix and Disney+ are planning to add advertising ‘tiers’ to their streaming services – although advertising may not yield the boost they anticipate, given it is often the fi rst line item to be cut by companies facing recession.
At Warner Bros Discovery (WBD), chief executive David Zaslav believes that Netflix intentionally underpriced the product, prioritising subscriber growth over profitability. WBD’s crown jewel,
HBO, is already a big brand and Zaslav isn’t going to indiscriminately greenlight every project. WBD is also going to be more judicious about how it monetises its content – as demonstrated by Zaslav’s decision to pull the plug on the new Batgirl film because the economics just didn’t stack up.
Paramount has a similar mantra: use the various monetisation windows available to raise the visibility of the content to new and different audiences at different price points. In the UK, Paramount+ is prioritising its streamer but also using other distribution channels, such as Channel 5 and Sky Cinema, to its advantage.
“Companies will focus on profitability over subscriber growth alone, and that means a more judicious strategy when it comes to content”
So what are the new realities now that the Netflix streaming bubble has burst? First, the watchwords ‘quality over quantity’ will get a renewed focus. Companies will focus on profitability over subscriber growth alone, and that means a more judicious strategy when it comes to content.
This more thoughtful approach to content will likely prompt a return to more windows and varied platforms for shows. When Netflix started buying all rights, it changed the traditional windowing strategy and accelerated a move to ‘day-and-date’ releases for theatrical and pay. But that now looks like one of the all-time worst ideas for any media company trying to get the most bang out of its content buck.
The more mature players can vary marketing and advertising in different markets and around different release dates, so they can more easily target customers. One size doesn’t fit all any more when it comes to content release.
For producers, this might sound like a problem – the golden age of peak TV budgets via the highly competitive streaming wars is over. And a little bit of that is true. Content makers must realise the recession will reduce advertising, and probably programming budgets.
But there will continue to be a huge need for the best shows to at least keep, or hopefully even add, a few subs every quarter. Therefore, producers need to be more thoughtful, just like the streamers who will buy their ideas. As always, the cream will rise to the top.