Streaming Bellwether Netflix Shows Drama Of COVID-Era Subscription Economy

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When streaming on-demand movies at scale became viable around 2007, a new household brand name emerged: Netflix. It charged out of the gate to disrupt giant Blockbuster Video’s dominance of rentals by using tech and customer experience: online ordering, shipping DVDs by mail and no late fees. There was also their “suggestion” algorithm — a glimpse of the future.

Yet it’s been said that of Netflix’s innovations, its smartest by far was charging a single monthly subscription price to watch as much as one wants instead of paying per rental, as was the industry standard. It was the payments breakthrough that helped fuel streaming’s growth.

And while early Amazon efforts, Apple TV, Hulu and the first Roku devices all debuted in 2008, and though Netflix became the Blockbuster Video of streaming TV for a good many years after that, the party might finally be over. Netflix’s stellar first-half 2020 financials belie the fact that it’s losing subscribers to Apple TV, Disney+, Amazon Prime Video, HBO Max and other entrants as big studios take back titles from Netflix — a victim of its own success if ever there was one.

Not that anyone is counting Netflix out. In the first place, its loyal following has said they’re willing to pay more for a Netflix premium service. Secondly, its pipeline of original shows were mostly in post-production when COVID-19 shut down the entertainment industry. Also, it relies on no big sports contracts or live events for viewership.

Streaming Giants Slug It out for Subscribers 

Netflix has been losing crowd-pleasers for a couple of years, most recently “Parks And Rec” in September. And it’s no understatement to say that the imminent exit of “The Office” from Netflix in January 2021 will be traumatic for millions.

To re-binge the antics of Michael Scott and the Dunder-Mifflin crowd, you’ll need to subscribe to Peacock, NBC’s new streaming service. Same for other popular series, which are all slowly returning to the networks and studios from whence they originated.

Given such news, Netflix is coming to grips with the limits of growth. In a July letter to investors, CEO Reed Hastings said, “In the first half of this year, we’ve added 26 million paid memberships, nearly on par with the 28 million we achieved in all of 2019. However, as we expected … growth is slowing as consumers get through the initial shock of [COVID] and social restrictions.”

How Netflix will deal with growing cancellations and churn as it seeks to stand on its own merits as a studio producer of original film and TV programming is being closely watched as a bellwether of the larger subscription services trend that’s finding new commercial uses.

“Streaming services are not the only subscription providers witnessing increased demand and use. The industry as a whole has added 15 million subscribers and 96 million subscriptions since the pandemic began, with the average consumer possessing 2.9 subscriptions in July — up from 2.6 in February,” PYMNTS recently reported, citing the new Consumer Subscription Retail Services Report, done in collaboration with Recurly.

“The rising tide has lifted all boats, including in education and training, which have seen subscribers grow at a rate of 20 million and 10 million, respectively,” per the report.

Flexibility, Features and the Future

There’s plenty of speculation about how Netflix will compete with the likes of Disney+, which possesses arguably the most valuable film and TV vault in filmed entertainment, and the movie-making muscle to keep fresh new content flowing. The service launched in November 2019 and reported 60.5 million paying subscribers by the end of July. By comparison, The New York Times reported that Netflix had 182.8 million subscribers.

As for holding onto those subscribers against a growing field of competitors, PYMNTS’ latest Subscription Commerce Conversion Index notes that “providers that give subscribers more control over plan terms may be more likely to engage and retain them. Our research suggests the top 20 subscription merchants are the most likely to provide features that allow users to either change or cancel their subscriptions.”

Other options gaining popularity include those that allow subscribers to change subscription terms, such as upgrading or adding new items. “Seventy-six percent of middle-performing merchants and 30 percent of bottom performers allow users to cancel subscriptions on their websites as opposed to requiring calls to their contact center. They are even less likely to allow customers to customize the terms of their plans on their sites, with 74 percent of middle performers and 15 percent of bottom ones doing so, respectively,” per the Index.

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