Last month MultiChoice made the decision to restrict DStv streaming to one screen at a time. This move was divisive and now it looks like Netflix could go down a similar path.
This is because account sharing is a massive problem for Netflix which revealed in its financial results for the first quarter of the year that it lost some 200 000 subscribers.
While the streaming platform now boasts over 222 million subscribers, it also estimates that over 130 million households are using a shared account. To be clear, this means sharing an account with somebody outside of the household.
“In the near term though, we’re not growing revenue as fast as we’d like. COVID clouded the picture by significantly increasing our growth in 2020, leading us to believe that most of our slowing growth in 2021 was due to the COVID pull forward. Now, we believe there are four main inter-related factors at work,” Netflix explained to shareholders.
The first of these four factors is the fact that growth of Netflix’s market isn’t entirely dependent on it. The adoption of smart TVs and broadband as well as the cost of data all contribute to lower adoption of Netflix but the most the firm can do about this is wait for adoption to increase.
The second factor was the aforementioned account sharing. Interestingly, the share of paying members and shared accounts hasn’t changed over the years but it is now harder to grow revenue given how many folks are sharing accounts.
The third factor is competition. Netflix entered the market when there were almost no other streaming platforms about. Now, however, linear TV channels have cottoned on and started their own streaming platforms.
Finally, macro factors such as a sluggish economy, increasing inflation and more have likely led to slower uptake of Netflix subscriptions.
So how do the firm intend to increase it’s revenue based on the factors it can influence?
Account sharing is perhaps the easiest point Netflix can address as it has direct control over this aspect.
While it announced that it was testing a paid sharing feature in March, it now appears that Netflix is fixated on implementing this as a permanent feature. However, the firm is also well aware that adding a paid sharing feature could prove divisive but it could present a short to mid-term opportunity to grow memberships.
But perhaps the most important realisation Netflix have come to is the fact that, in order to grow, it needs to stop focusing solely on the US market.
“Over the longer term, much of our growth will come from outside the US. Traditionally, US entertainment companies have viewed ‘international’ as an export market for US content. But we saw long ago that great stories can be made anywhere and loved everywhere – dramatically broadening the pool of creators with whom we can work, increasing the variety of our programming and better serving local tastes,” the firm told shareholders.
The question we have however is whether this realisation has come too late.
Just looking at South Africa, Showmax has been offering excellent, high-quality locally driven content for years now and it’s just getting better at it. Part of this is driven by Showmax’s knowledge of the local market and Netflix doesn’t really have that same knowledge. Of course, Netflix could purchase content from locals and produce it but then so could every other streaming platform.
For now then, Netflix is focused on stabilising its business and growing revenue even if it is slowly.
We are, however, preparing for the inevitable restriction on account sharing because if one thing was made clear in these financial results, Netflix can’t really afford to let us keep sharing accounts.
