Netflix and inherent value
Growth is the name of the game in the subscription economy — shareholders and investors want to see those user numbers ticking up regularly. If you’re not adding new subscribers every quarter, you’ll be the talk of the financial press, and not in a good way. And for platforms like Netflix that are subject to this scrutiny, there is still growth to be had. According to new data published by Kantar in January, 59% of UK households now subscribe to at least one SVOD (video streaming) service. 43% of households subscribe to Netflix (Kantar estimates Netflix could boost its numbers by around 10–15% if it clamped down on password sharing. Fingers crossed that doesn’t happen).
That means, as one of my former colleagues was always fond of pointing out when we looked at stats, 41% of households don’t subscribe to an SVOD service, and 57% of households don’t have a Netflix subscription. The cold hard numbers tell us there is still growth in the market. The rise of Disney+, in particular, demonstrates that consumers aren’t averse to subscribing to multiple services — it now has one in four households in the UK signed up from a standing start.
Growth is key to keeping investors and shareholders satisfied. It must be particularly galling for Netflix execs to see Amazon Prime Video and Apple TV+ both delivering strong growth last year. Amazon, in particular, was responsible for 45% of all new UK SVOD subscribers in Q4 2021; Netflix has reached something of a plateau. But as is often the case when looking at any form of measurement, the numbers alone don’t tell the whole story.
Both Amazon and Apple TV+ rely heavily on free trials to drive their growth — something Netflix doesn’t offer. Anyone involved in promoting any subscription service knows that free trials are practical in two ways — they get you hooked, and they often roll over from free to paid without consumers noticing (this has happened to me with LinkedIn Premium on a couple of occasions, I’m not too proud to admit).
Perhaps even more pertinently in Amazon’s case, access to Prime Video comes as part of the overall Prime bundle. Given how much consumers rely on Amazon to get their Christmas presents, it’s no surprise that subscriber numbers were up in Q4. One can question just how attracted to Prime Video new subscribers were — for many, it’s likely only to be a small part of the reason they took out the overall Prime bundle.
Kantar’s study offers some additional evidence points for this line of thinking. In a list of the top ten most enjoyed VOD titles, Prime Video had only one entry (The Wheel of Time), and Netflix had eight, including the number one — Squid Game. Netflix also has 53% more heavy users than Prime Video. So Prime Video might be winning in the race to add subscribers, but those subscribers aren’t binging as much, and its titles don’t carry the same cultural weight as Netflix or Disney+.
Squid Game, in particular, was inescapable for much of Autumn, not just the show itself but also the associated memes and instantly recognisable nature of its costumes and scenery.
For those of us who work in comms, we see the inherent value in being responsible for a show that readily captures the collective consciousness. It positions Netflix as the creators of culture, not followers. Plenty of people on Twitter got excited by comparing YouTuber Mr Beast’s recreation of Squid Game and his view count with the smaller number of people who watched the show on Netflix. For me, that’s not the point. The first-mover advantage is clear to see — Mr Beast would have nothing to create if Netflix hadn’t taken a chance on producing a show whose script had been in existence in some form since 2009.
Netflix builds its brand on these shows that capture people’s attention and get them talking. The Crown, Bridgerton, Stranger Things represent some of the most discussed and meme-d shows of the past decade. I’m not foolish enough to think that investors and shareholders will suddenly change their views and be mollified by brand equity when subscriber growth has stalled. But the UK, in particular, is now a relatively mature market for SVOD services. At some point, the challenge for streaming services will switch from being primarily about growth to being principally about retention. As the cost of living crisis begins to bite, consumers will start looking at their monthly bank statements to try and identify non-essential expenses to cut. The service that contains the shows you’ve enjoyed the most is likely to stick around; the one you can take or leave may not.
There’s some debate as to whether Netflix is a “tech company” or not; regardless, it’s lumped in with the tech stocks that have enjoyed sustained, exponential growth. On paper, there is still growth to be had globally. But as history and the recent travails of Facebook show, there’s often a ceiling. Benedict Evans calls Netflix the ASOS of the SVOD world: a high volume of shows, pushed out swiftly to see what sticks. I’m not sure this is entirely fair; plenty of Netflix shows stick in the mind and ladder up to your perception of the brand. I couldn’t tell you what an ASOS signature look was (although to be fair, that is way, way outside my comfort zone).
Whether or not you agree with the “Netflix as ASOS” reading, there’s a challenge for Netflix and the other primary SVOD broadcasters. Once the number of potential subscribers dwindles in developed markets, companies need to convince investors and shareholders that there’s still value to be created. And for Netflix in particular, that value is in the brand and its roster of culture-defining shows.
