10 years ago, Netflix started its first major international success with its own production. The first season of House of Cards started on February 1, 2013. A year earlier he had started his own production adventure with the Norwegian Lilyhammer, but only the political drama with Kevin Spacey and Robin Wright was the starting signal for the ambitious project with which the platform Los Gatos (California) in a few years reached the lead streaming revolution in the audiovisual field. Founded in 1997 as a snail mail DVD rental company, the company made an early leap into the digital world and took the lead in the digital television leadership race with global ambitions. It built its model on the image of a friendly and open company that even welcomed and revived titles discarded by other chains. It also boasted cutting-edge technology and an algorithm that also recommended series based on each individual’s tastes, which helped find the next world hit. In a world as changing as the audiovisual industry, the past year has redefined the company’s path. This is the story of the year everything changed on Netflix.
Alarm bells went off when the company announced while presenting its first-quarter 2022 results that it had lost subscribers for the first time in its history. The pandemic had accelerated the explosion of streaming, and platforms realized in 2022 that the growth ceiling might be closer than they thought. The company’s shares plummeted on the prospect of a new and stronger subscriber drop for the next quarter. Shortly thereafter, the platform announced the layoff of 150 employees. In July, it was announced that a million more had fallen between April and June 2022, less than the two million expected. These declines served as a tipping point: the platform wars entered a new phase where unstoppable growth was no longer as important as making the business profitable and financially sustainable.
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To do this, Netflix focused on three main areas affecting advertising, shared accounts, and content. In March last year, the company’s chief financial officer surprisingly did not rule out the introduction of ads on its platform, which until then had strictly rejected advertising funding. “Never say Never”. That little hint made the rabbit stand up. Shortly thereafter, it was confirmed that they were working on a version with advertising. And in November, just six months later, Netflix launched its basic plan with ads. That put it ahead of Disney+, whose ad-supported version arrived in the United States in December (expected to expand to other countries this year). According to data provided by the company itself in its latest presentation to investors, it added 7.7 million subscribers in the last quarter of 2022, significantly more than the 4.5 million forecast. The company didn’t detail how many of them took advantage of the cheaper option with advertising, but a report by specialist communications consultancy Ampere Analysis estimates that 10% of the company’s new customers subscribe to the version with advertising.
Jenna Ortega, in “Wednesday,” one of Netflix’s recent big hits.
To achieve this higher profitability for the company, another front Netflix has been working on for years has been shared accounts. The company estimates that around 100 million people use its platform without having their own account, meaning they share someone else’s account. It’s a practice that the company itself had encouraged with messages on social networks and advertising campaigns during the phase when it was about gaining market share. Now things have changed and they are willing to accept an initial backlash if it means medium or long-term benefits. In Chile, Costa Rica and Peru, it had already been testing a system for months that restricted access to an account to only the subscriber’s home (i.e. conformed to what was stated in the acceptable use policy from the start) and required an additional payment for each user to join this February it extended a similar system to four other countries: Canada, New Zealand, Portugal and Spain. “It’s not going to be a universally popular move,” confirmed Greg Peters, the platform’s new CEO, along with Ted Sarandos, who also announced they expect a reaction in the form of last-minute cancellations, similar to what happens with rising prices.
image crisis
To that reaction comes the intangible blow to a company that has made its image one of its strengths. While HBO is accompanied by the prestige and quality of its offer, and Disney is associated with family content and its big brands, Netflix has opted for a modern and narrow image, a cool brand that has been damaged for some users with these recent changes.
Content is the other key flank Netflix is working on in order to reach its goal of profitability. Until now, the company has followed a production model that attempts to flood the market with continuous releases. In a letter to shareholders in January this year, the company asserted that it was already at “the most intense phase” in building its original program. Now it’s a matter of prioritizing quality over quantity, although they must maintain a level of production to please a market that constantly calls for fresh blood. And they also think a lot about which productions they renew, taking into account how many users they saw on the platform in the first 28 days and how many of them ended the season, in addition to their production costs and other factors.
With these open fronts, Netflix begins a year of change, which will add to the departure of Reed Hastings, the company’s co-founder, as CEO. A new Netflix to compete in a competitively saturated market that seems to have peaked in the ongoing rise of television production and that, unlike other companies (Disney, Amazon, Apple…), has only one salvation: its platform .
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