Have we hit peak Netflix?

This time last year, Netflix was fêted as the future of television. Its subscriptions grew by 30 per cent over 2020 as people bought in entertainment during lockdown. Netflix always warned that its growth would slow afterwards and the market seemed to accept that. But its shares have halved since their mid-November peak after a radical reappraisal of its fortunes. What’s going on?

Those shares plunged 27 per cent in pre-market trading when Netflix said that, rather than see growth slowing to a mere 2.5 million more subscribers as it had expected for the first three months of this year, it has entered decline – actually losing 200,000 subscribers. A small dent on its 221 million total but it’s the direction of travel that matters. Netflix has borrowed huge sums based on expansion hopes that are looking increasingly shaky. The pullout from Russia was always going to hurt but it now expects to lose another two million subscribers by July. It blames competition from rivals like Disney+ and HBO Max, rampant password-sharing and general cost-of-living pressures leading to a cull of standing orders.

Netflix pioneered a genre but, like all pioneers, it faces imitators. Increasing subs prices in the face of this competition now look like a risky strategy: consumers with two or three streaming subscriptions face tough choices when budgets tighten. In a significant U-turn, Netflix is talking about following its rivals in offering a cheaper service with adverts, mindful that its ambitious price hikes are a liability. Typically, streaming services with ads are a third cheaper than the ad-free version. It recently jacked up its UK rates by £1 a month: to £6.99 and £10.99 for its two basic rates while the premium tier rose £2 to £15.99 (or a cool £192 a year). But this was at a time when it mistook its recent lockdown momentum for something longer-term.

It now has to think again. The huge sums it spends on new series may, in retrospect, be seen as part of a bubble. Given many UK film studios are booked out with Netflix series years in advance, we should hope not. But the fortunes of streaming services do look a lot less certain than they did a few months ago.

Then the password-sharing. About half of Netflix subscribers are understood to share passwords with other households. This was, once, seen as a marketing tool, a symbol of how many future customers it might have.  ‘Love is sharing a password,’ it once said. But since then, websites have popped up offering shared Netflix passwords for 70p a month. It struggles to stay ahead of this. Attempts to add security (or charge a premium for sharing) have encountered resistance and cancelled subscriptions. So people were prepared to pay its higher prices if they could share the password – but when they couldn’t, then they thought twice. 

So the mood has changed – and changed utterly. Analysts are asking if Netflix got lazy on lockdown success, failed to innovate, grew complacent about competition and has hit its ceiling. And whether – like Peloton, Zoom and JustEat – it should be seen as a lockdown darling that’s finding the post-Covid years far harder to navigate.