Netflix. Figure/IC photo
On April 20, #0518# was on the hot search list, and under the entry, the crowd praised the production platform Netflix.
On the same day, Netflix released its first quarter 2022 financial report, reducing the number of users by 200,000, which is also the first growth regression in a decade since October 2011. Previously, Netflix's expectation for user growth was to increase by 2.5 million, and it expects the number of user subscriptions to continue to decline in the second quarter, with a number of about 2 million. As soon as the earnings report came out, the day's closing Netflix stock price fell 35.1%.
After handing over the unsatisfactory transcript, Netflix proposed a tiered charging plan such as advertising and shared fees, which will break the "membership subscription" model that Netflix once prided itself on.
Netflix's negative user growth has shaken the confidence of capital, and also cast a layer of fog on the track of the long video industry, can the Netflix model still work?
Negative growth of users, Netflix "bowed its head" to introduce advertising
For many years, domestic video platforms have been trapped in the whirlpool of long-term losses, but with Netflix profits first, at least it can prove that long video profits are feasible.
In the first quarter of 2022, Netflix's total revenue was US$7.868 billion, an increase of 9.8% year-on-year. Although it still maintains a certain rate of growth, it has slowed sharply from the perspective of growth rate, falling to the lowest point in nearly 10 years. Also lower was net profit, $1.597 billion, down 6.4 percent from $1.707 billion in the year-ago quarter.
From a business point of view, Netflix's main revenue still comes from subscription revenue, with subscription revenue in the first quarter of 7.828 billion US dollars, an increase of 10.04% year-on-year and 2.1% quarter-on-quarter. This part of the increase is mainly due to the growth of single-user payments.
In January 2022, Netflix's base subscription price in the U.S. increased from $8.9 to $9.90 per month (about 62.96 YUAN), and the premium subscription price supporting 4K resolution increased to $19.99/month. In addition, a standard subscription with two terminals supporting HD resolution has seen prices increase from $13.99 per month to $15.49.
Looking at the price of other competitive streaming subscriptions, Apple TV +4.99 US dollars / month, Disney + 7.99 US dollars / month, Hulu 12.99 US dollars / month, Netflix is no longer competitive in price, in a strong marginal competition, Netflix needs to be more cautious for each dollar added.
What really surprised the capital was that in the first quarter, the number of Netflix subscribers showed negative growth, losing 200,000 users, even if the unexpected reasons for the reduction of 700,000 users caused by the suspension of Russian services were excluded, the growth of 500,000 was still a certain gap from the expected growth of 2.5 million.
Although Netflix believes that the increase in the user churn rate has nothing to do with price increases, and the number of 200,000 is not a large value relative to the number of users of Netflix exceeding 200 million, the shift from positive growth to negative growth has begun to shake capital's confidence in Netflix.
Unlike the domestic video platform "membership + advertising" walking on two legs, Netflix's business model is no ads, completely dependent on membership subscription income. This experience has also been guiding domestic video platforms, gradually transitioning from relying on advertising to increasing the proportion of membership fees. However, the report card submitted by Netflix this time disenchanted the Netflix model and reversed to the "Aiyouteng" mode.
In the shareholder letter, Netflix attributed the negative growth of users to "shared accounts" and "peer competition", "In addition to the 220 million paid accounts, we expect Netflix to share accounts with at least 100 million users." ”
Faced with the lack of membership growth, Netflix said that the epidemic has limited penetration and growth, but the potential market has not changed.
Next, Netflix's response strategy is to adjust the charging model, on the one hand, to benefit from 100 million shared accounts. "We see increasing the level of business monetization for these unpaid users as a huge growth opportunity ahead, and our main way to achieve this is to ask our members to pay a little more when sharing with people outside their homes," Greg Peters, Netflix's CHIEF Operating Officer and Product Officer, said on an earnings call.
On the other hand, Netflix plans to get rid of the previous ad-free setting and try to introduce lower-priced advertised affiliate subscription prices and set up tiered pricing packages.
The tiered pricing model has worked on platforms like Disney and Hulu, and Netflix CO-CEO Read Hastings said on an earnings call, "It would be reasonable if users could accept adding ads between viewings in exchange for lower paid prices." ”
Giants besieged the city, and Netflix's "streaming media brother" position was crumbling
Relying on content to attract users to pay and then invest more money in content is the model that Netflix ran out of.
In the story that Netflix tells to the outside world, the price increase is to better support the content, but in fact, the pressure on Netflix content is increasing. Compared with established film and television companies such as competitors Disney and Warner, Netflix's content productivity is far from enough. Disney announced the launch of the streaming platform Disney+ at the end of 2019, with super IPs such as Marvel, Pixar and Star Wars, accumulating 100 million users in more than a year.
In order to catch up with Netflix in streaming, Disney is also increasing its investment in content. On Disney's Q1 2022 (ending December 2021) earnings call, management mentioned plans to spend $33 billion on content in fiscal year 2022, while Netflix plans to spend $18 billion on content in 2022.
In the content war, financial strength is indispensable. Disney has a number of monetization channels such as theme parks, derivatives, and theatrical distribution, and it is more confident to invest. Similarly, Apple's Apple TV+ and Amazon's prime in the streaming media market have strong financial strength and channel advantages.
At the same time, the giants are also "fighting together", Disney has bundled Disney+ and ESPN+ with the Hulu Live service, Apple and Amazon have bundled streaming and other services, and Warner and Discovery recently announced the completion of the merger.
Under the siege of the giants, Netflix, who walks on one leg, urgently needs to find another support point. Netflix is also adjusting its strategy, first of all, to get rid of the dependence on content production companies, increase the proportion of self-made content, and now Netflix's self-made content has reached more than 55%.
At the same time, Netflix is cultivating the habit of watching movies online, and joined the Motion Picture Association of America (MPPA) in 2019, after which there were only six major Hollywood film companies in MPPA - Disney, Fox, Paramount, Sony, Universal, Warner, Netflix is the first streaming company to join MPPA.
In recent years, Netflix has invested in movies such as "Red Notice" and "Don't Look Up", and the epidemic has also boosted the development of Netflix's online film business. It's just that after 6 years of exploration, it's still unclear how films that leave theaters can reach greater potential.
It is difficult to make games, e-commerce, and IP monetization
Under the strategy of walking on multiple legs, Netflix used the game as a new fulcrum.
In November 2021, Netflix launched its own game platform, Netflix Game, all services are included in Netflix membership, no ads, no additional fees, no in-app purchases. At present, 17 games such as "Stranger Things: 1984" and "Dungeon Dwarves" have been launched, some of which are adapted from film and television IP.
Since last year, Netflix has acquired three game developers in a row, including Night Schoo, Finnish game developer Next Games, and the role-playing mobile game Dungeon Boss and the betting game myVEGAS Bingo Boss Fight Entertainment.
Read Hastings said of the game on the earnings call, "It's very encouraging that we're building capabilities in this space faster than we did when we entered the film industry." "At present, the game is still only as an added value for Netflix members to provide users with more value, and does not bring in additional revenue. At the same time, in terms of investment, Netflix still maintains a relatively cautious strategy, planning to open up new space in the integration of movies and games and interactive games.
In addition, Netflix also launched Netflix.shop, self-built derivative e-commerce, selling derivatives of popular films, including cups, T-shirts and so on. IP commercialization is a bigger test than creating content, and once the barriers are broken, great potential can be unleashed.
The vitality of Netflix IP is far less than that of Disney, which has made IP the ultimate. Even after the explosion of "Squid Game", the candy and the same clothes were sold on the Internet for a while, and now they are gradually calming down.
In fact, domestic video platforms began to explore diversified monetization paths earlier, and Tencent launched Tencent Pictures, Xinli Media, and Yuwen Film and Television to form a "troika", integrating film and television business with online text and animation to improve the development rate of IP. iQIYI also proposed a plan to go from apple trees to apple orchards, connecting literature, comics, light novels, online games, shopping malls, etc. through IP, and eating more fish.
Streaming media competition is becoming more and more fierce, long video has not yet explored a proven model, and short video, audio to bring a new round of impact to long video. For Netflix, whether it is Netflix.shop or Netflix Game, there is still a long way to go, and before this, Netflix's first problem to solve is how to restore capital confidence in long videos.
Spencer Neumann, CFO of Netflix, stressed at the end of the earnings call that "although the revenue growth rate will not return to the past before the end of the year, our revenue will still grow, and the number of paid users will also increase netly." In the second half of the year, with the introduction of more content, the impact of price increases disappears, and we will also usher in the peak season in the traditional sense. ”
Beijing News shell financial reporter Song Meilu Editor Xu Chao Proofreader Lu Qian