Some good news for Netflix, with subscriber gains in the third quarter. In some ways that makes sense—Netflix has been in business for nearly two decades, and it has become a formidable media company with a devoted user base. More troubling is that Netflix (NFLX) is about to lose those users.
But Netflix’s decline is bad for subscribers, at a very low level. It’s not as if Netflix has become more expensive. It’s more that new subscribers are getting the cheaper, more limited content offered by competing streaming services, including Amazon (AMZN).
What’s going on?
Part of the problem is a long-term change in the nature of video consumption. People don’t watch videos as much as they used to. As a result, Netflix has seen an uptick in losses when they try to find new subscribers.
Netflix’s strategy has always been to find new subscribers by offering the most popular, highest-quality content, but that strategy doesn’t seem to be working now.
Netflix’s strategy for new subscribers has been to offer three high-quality tier packages that appeal to different audiences. The standard Netflix plan offers 40 hours of content a month with no commercials, the “Ultra” plan offers 150 hours of content, with one ad inserted on the bottom of each video, and the “Platinum” plan offers an additional 150 hours of premium content, with one ads every 10 minutes. Subscribers can select their price point by entering their monthly income, and that determines the content tier they choose—for example, they can choose “Ultra” which has one extra ad per 10 minutes.
Why Netflix Isn’t Killing Its Prime Members
The idea was that people used to having many channels at different price points would have more choice that way. However, as Netflix’s video catalogue has grown, it now has one channel at every tier.
That problem, that Netflix has a one-channel plan at each tier, is one of the reasons that it is losing a large portion of its subscribers. The one-channel strategy