Netflix considers ads, password sharing crackdown, live sports

In Introduction to Hamilton Helmer “”Seven powers: the foundation of business strategy”Released in 2016, Netflix Co-founder and co-CEO Reed Hastings explains what happens when market leaders don’t adapt to their new competitiveness.

“Through my business career, I have often observed strong incumbents, who were once praised for their business insights and unable to adapt to the reality of new competition,” writes Hastings. “The result is always an amazing fall from grace.”

Six years later, Hastings realized that he was now playing the role of an incumbent who had experienced an astonishing dip from grace. Netflix shares have fallen by more than 70% so far.Company Expected to lose 2 million subscribers in the second quarter announced in April.. Investors are making a lot of sales because they question the size of the entire addressable streaming market. This is the number Netflix mentioned earlier. It can be as high as 800 million. At the time of the latest count, Netflix has about 222 million global subscribers.

Netflix executives are now looking back on their inability to adapt to the reality of the new competition. Massive subscriber growth during the Covid pandemic When billions of people around the world were stuck at home. While the company has consistently produced blockbusters such as “Stranger Things” and “Squid Game,” Netflix rethinks many of the philosophies that confused the industry over a decade ago.

Strategic changes, even margins, are surprising to the companies best known for disrupting the two industries, first video rentals and then cable TV. Instead of inventing a new way to overturn the crowded streaming video industry, Netflix is ​​rethinking almost every way that stands out from legacy media companies in the first place.

In other words, Hastings has decided that his best strategy right now is not to cause confusion.

“It’s worth noting that Netflix seeks growth by rethinking many of its firm beliefs,” said Joel Mier, Netflix Marketing Director and Richmond University Marketing Lecturer from 1999 to 2006. I am saying. “These decisions clearly help with short- to medium-term revenue and subscriber growth. The bigger question is how will it affect the company’s brand in the long run?”

Netflix declined to comment.

“Ads look easy until you get into it,” Hastings said. Said in 2020.. “Then you realize that the entire advertising market isn’t growing and is actually shrinking now, so you have to steal its revenue from elsewhere. It’s a hand-to-hand combat to reduce spending on people. ABC And to spend more on Netflix, we released it 20 years ago for about $ 1 per share, but now [more than] $ 500. So I think the subscription-focused strategy worked pretty well. “

Netflix is ​​no longer under $ 500 per share. The closing price on Monday was $ 169.69.

Since making that comment in 2020, Hastings has been watching other streaming services. Warner Bros. DiscoveryHBO Max, NBCUniversal’s Peacock, Paramount GlobalParamount + launches a low-priced service with ads without consumer backlash. Disney Later this year, we plan to announce Disney + with cheaper ads.

In April, Hastings announced He changed his mind.. Netflix, which is supported by ads, is “very reasonable” for “consumers who want low prices and are tolerant of ads.” He said.

Netflix has previously claimed to have found a gap in the market by not worrying about advertising. A niche show that doesn’t go well with an advertiser looking for scale can be valuable to Netflix if it attracts enough subscribers for its production budget.

It’s not yet clear if Netflix will offer a full slate of content with an ad-supporting service, or if a particular show will only be offered to ad-free subscribers.

Part of selling Netflix to content creators is to create traditional pilot episodes of the show and order “straight to series” rather than judging them based on hard products.Other streamers Followed After seeing Netflix skipping pilots and attracting A List talent.

“If you’re a typical studio, raise money for a pilot, and if it’s successfully tested, get a show, make a few more episodes, and wait for a rating,” 2001-2012. Until 2014, he was the marketing arm of Netflix and was the director of global marketing and subscriber acquisition. I told CNBC in 2018.

“At Netflix, we only ordered two seasons because the data was decided. The show’s creator asks,” Do you want to see the notes? Do you want to see the pilot? ” We answer, “If you want us.” The creators were rugged. “

Ordering the project directly from the series gave writers and producers certainty and, in many cases, more money. The downside that Netflix has discovered is that it also leads to the fact that the series turned out to be not very good. The deadline is 47 Various examples of Netflix ordering directly from the series in 2020-21 When 2022 is 20.. There are some notable things, such as “The Witcher: Blood Origin” and “That ’90s Show”, but most of the time they are rarely talked about.

Netflix plans to start ordering more pilots and delay its straight-to-series development process, according to people familiar with this issue. We hope the end result will lead to higher quality programming and less fluff.

Netflix has no plans to reduce the overall budget for content. Still, people said they would redistribute the funds to focus on quality after adding quantities over the years to fill the library. Executives have added more original programming in recent years to avoid permanent reliance on licensed content. Many were pulled back by the media companies that own them to meet their own streaming services.

yet, in recent yearsNetflix experimented Weekly releases of several reality shows instead of bulk drops. So far, this hasn’t been extended to script streaming.

“We basically want to give our members the choice of how they see it,” said Peter Friedlander, head of Netflix’s US and Canadian screenplay series. Early this month.. “Therefore, in these script series, providing the option to watch as much as you want when watching is the basis of what we want to offer.”

However, people familiar with this issue said Netflix is ​​still trying out weekly releases of certain types of series, such as reality TV and other competition-based shows.

Netflix’s resistance to weekly script releases may be the next step.

“Never, never, never to follow competitors” Hastings Said in 2018.. “We’re not trying to copy others because we have a lot of things we want to do in our area. Whether it’s a linear cable, there’s a lot we don’t do. We We don’t do (live) news. We don’t do (live) sports. But what we’re doing is really trying to do well. “

Still, last year, Hastings said Netflix would consider bidding on F1’s live rights in combination with the success of the documentary series Drive to Survive, which introduces each race season.

“A few years ago, F1 rights were sold,” Hastings said. I told the German magazine Der Spiegel in September.. “We weren’t among the bidders at the time, but today we think about it.”

This month, Business Insider Netflix reported We have been in talks with F1 for several months about broadcasting rights in the United States.

Adding live sports can give Netflix a new audience base, but it faces Netflix’s recent aversion to spending a lot of money on licensed programming.

However, as Netflix’s growth slowed, Executives see password sharing crackdowns as a new engine to revitalize revenue growth.. “We’re working on ways to monetize sharing, and we’ve been thinking about it for years,” Hastings said in a conference call in April. “But when we were growing fast, working on it wasn’t a high priority, and now we’re working on it.”

Next year, Netflix will charge an additional fee for accounts that are clearly shared with users outside the home.

“We are not trying to stop that sharing, but please pay a little more so that we can share it with her and she can benefit and value the service. , We also said that Chief Operating Officer Greg Peters said on the same phone, “Revenue related to its viewing,” “to bring revenue to everyone who sees and benefits from the entertainment they offer.” You can do it, “he added.

CNBC previously reported How are password sharing crackdowns likely to work?

Netflix became famous for that 2009 Cultural Presentation, This shows the values ​​of the company. One of the company’s core beliefs speaks to innovation. “Keep us agile by finding time to minimize complexity and simplify.”

Netflix has benefited from being a pure streaming company for years.in the meantime Other media companies like Disney are lagging behind due to conglomerate discounts and slow-growing or declining legacy assetsInvestors love the growth of Streaming, Netflix’s one-trick pony.

But that is also changing slowly. Netflix announced last year that it was working on video games. Netflix is ​​now There are 22 video games on the platform, aiming for 50 by the end of the year.

By adding new industries to streaming video, Netflix can give investors new reasons to bet on the company’s future growth. But it also potentially cuts the long-standing Hastings belief: focusing on movies and television shows makes Netflix stand out.

“What we have to do is a special play,” Hastings said. I told CNBC in 2017. “We are really focused on entertainment, joy, and the realization of movies and TV shows.”

See: Netflix is ​​probably in the best position among streamers in a recession, traders say

— — Sarah Whitten of CNBC contributed to this story.

Disclosure: NBCUniversal is the parent company of NBC and CNBC.