Today, we learned that a price increase over at Netflix cut subscriber growth to a three-year low. The market reacted pretty much as you'd expect, with shares devalued and a lot of commentators expressing real concerns about Netflix's future direction.
The reality is, though, that - even with subscriber growth falling - Netflix is a powerhouse. Is still has more than 47 million domestic subscribers (more than any domestic premium cable network), and overseas markets now account for 43% of Netflix's customer base. Today's announcement clearly indicates that Netflix has to overcome some real problems, but I believe the future is bright for the streaming company. Here are my proposals:
1. Focus on the International Markets
Most analysts are predicting that Netflix's overseas customer base will overtake the domestic one in the next couple of years. That brings real problems, though; international licenses are expensive, and hard to acquire. Just yesterday, Netflix announced that it had gained the international rights to the Star Trek franchise - a massive win for Netflix! Announcements like this are few and far between, though. Living in the UK, over the last few months I've seen cult classics Buffy the Vampire Slayer and Stargate-SG1 disappear from Netflix (on both occasions when I was partway through rewatching a series).
Although the US content library has been shrinking in recent years, the US library is still far greater than the overseas content library. In January 2016, Finder.com reviewed the content libraries of every country Netflix was then available to. Giving an idea of the variation, in the UK you only have access to 38.2% of the US TV library, and 34.53% of the US movie library. The worst performer was Netflix Albania, where subscribers can only access 2.85% of the US TV library and 4.35% of the US movie library. This variation is why viewers took to VPNs; instead of dealing with the cause of the problem, Netflix has been working to stop people being able to use VPNs.
Another issue is that Netflix's customer service channels aren't yet optimized for international service. When I queried customer service about Buffy and Stargate, I was pointed to web-pages telling me which shows would soon be removed from the domestic service. Netflix customer service couldn't give me any direction on how to find out if a show was about to be pulled from Netflix UK.
If overseas markets are so important for Netflix, then Netflix clearly need to start focusing more time - and money - there. There are signs this is already happening; one of the reasons content licensing costs are ballooning is because Netflix is purchasing overseas rights to a degree it has never tried before.
2. Netflix Originals are a Huge Competitive Advantage
Licensing is expensive. As HBO has proved, it's far wiser to focus in on producing "Originals" - and Netflix, as you'd expect, is doing just that. Chief Financial Officer David Wells gave us an idea of just how important Netflix Originals are to the future of Netflix:
"Long-term I think that's certainly a probable mix (50-50), maybe even a conservative one. The growth of those original films, series, series for kids, documentaries, have proven to be great investments in terms of their efficiency relative to other high profile content which we licence, which is encouraging us. I think it's made our rest of world launch possible, by having content that people want to see if markets where we haven't yet operated."
It's not enough to make original shows, though. They have to be good; and here, Netflix is seeing a remarkable success. This year saw no less than 54 Emmy nominations for Netflix Originals. That puts Netflix well ahead of Amazon, cable, and even network channels. Netflix was only behind HBO, which received 94 nominations, and SFX, at 56. It's becoming pretty clear that Netflix is a place for high-quality shows, ranging from House of Cards to Making a Murderer.
3. Keep an Eye on the Local Competition
Analysts have long been concerned that competitors are beginning to catch up to Netflix. That's definitely going on in the domestic market, but overseas competitors are watching Netflix with caution too. Over in the UK, for example, the BBC's fightback involves BBC iPlayer, an online / download service. In April, the BBC took the unusual step of releasing all episodes of one series - The Living and the Dead - on to iPlayer before airing them on terrestrial TV. It was a bold experiment, and it's going to be interesting to see whether or not the BBC follow this pattern with other shows.
The point is that Netflix's competitors have recognized the challenge, and are beginning to adapt - which will threaten Netflix's business model. It's not going to be enough to stay still; Netflix need to advance, to push on with creative programmes, and to identify opportunities wherever they exist.
So there you have it - my recommendations for success! Although this quarter's results are disappointing, I reckon the future's bright for Netflix. There are a lot of opportunities, but Netflix still need to play it wisely...
Do you think Netflix's future looks bright? Or do you have other suggestions for the company? Let me know in the comments!