User Growth Is Not a Business Model. Netflix Learnt It The Hard Way
User growth is not a business model. Netflix learnt it the hard way.
For the first time in 10 years (possibly for the first time ever) its user growth plateaued.
Revenue grew by just a single digit in 2022, for the first time since at least 2018. Net income also decreased for the first time. Q1 2023 followed the same trend, with many YoY metrics in the red.
But Netflix is not alone in this. Most tech companies are in a similar situation.
The market has saturated.
What's happening?
Consumers were spoiled by 15 years of (almost) free internet. Now the party is over. It is time to monetise.
Netflix plans its next phase of profit growth with three main initiatives:
- Double down on advertising:
A cheaper ad-supported tier was introduced in 2022. By now it counts 1mln subscribers (out of over 200mln in total), but it's growing fast. The company plans to offer more features and increase the streaming quality of this tier to make it more appealing. Long-live online advertising! - Crack down on password sharing:
Netflix estimates around 100mln free loaders on its platform. Soon, subscribers will pay extra to add new users to their accounts. Ideally, free loaders should be converted to the ad-supported tier.This could be key to further subscribers' growth! - Reduce spend on content creation:
This is the largest expense line at Netflix. In 2022, for the first time, less money was put into content creation than the year before.
Instead of fighting for subscribers, streaming platforms will likely specialise in specific genres of content, to retain and monetise loyal customers and save on content production. User growth will not be on their agenda no more.
This is a turning point in the internet how we know it!
