How can Netflix fix its churn rates and ascend again?
Netflix has had a pretty bad tumble in Q1, and analysts expect it to be even worse during Q2. So, how can the company reverse it?
Everything always goes back to the same principle: keep your customer happy.
Everyone knows that content is what really matters. By looking at the amount of streaming services available today, it doesn’t look like that’s going to change anytime soon. However, Netflix – the original ruler of streaming services and the company responsible for putting Blockbuster out of business – had a rather unpleasant fall recently. And all due to its churn rate.
Many media outlets reported that, for the first time in over 10 years, Netflix had a significant loss in subscribers. In the first quarter of 2022, more than 200,000 customers around the world dropped the streaming service. To make matters worse, the company expects to lose more than 2 million subscribers during the second quarter. The news sent its shares into a downward spiral, falling 35%. Year-to-date, Netflix’s stock is down by 62%.
While financial experts would argue that the company’s churn numbers during Q1 are trivial – after all, 200,000 out of over 221 million subscribers represent a .0009% rate – the second quarter prediction seems pretty concerning. Undoubtedly, this is all another reason why the NRR (Net Retention Rate) should remain the focus for any and all subscription companies. Otherwise, churn rates could mean the end of it.
What is really going on at Netflix?
As we all know, it’s been quite a rough quarter for pretty much every company in every segment. Therefore, no one should disconsider the effect that global events had on businesses. Economic downturns, sky-high inflation and war all had a part in what is happening right now. Including Netflix’s drop in subscribers, since part of it is due to the company’s pulling out of Russia.
But the issue that Netflix is currently facing has much more to do with the constant ruthlessness of the streaming industry than the rising price of goods and services. That is because nowadays, consumers have a host of streaming options available to cater to their every need. Amazon Prime Video, AppleTV+, Hulu, HBO Max and many more – all prime streaming services competing for the same subscriber.
So, how much at risk is Netflix? After all, many experts are unhappy about the company’s future due to its latest numbers. Nevertheless, Netflix is a strong company who’s had shown a strong leadership in the past. Its co-CEOs – Ted Sarandos and Reed Hastings – know very well that the streamer’s success comes from their user base. Therefore, chances are that Netflix will rebound and secure its number one spot sooner than later.
And here’s how the company can make it happen.
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Maintain customers as the focus
Even for the biggest companies in any segment, obtaining stable growth is a challenge. The number one factor that can cause a significant drop in market confidence is losing customers. When sales go down, a well thought out marketing campaign might get them back. But, the burn caused by churn rates can be a thousand times worse than a slow month in sales.
In this day and age, the saying “the customer is always right” can’t be the mantra for subscription businesses anymore. It has to be “customer is king”. Instead, Netflix opted for a price hike while simultaneously going for a clampdown on users sharing their accounts. At a time when its customers are struggling with high inflation levels, the streamer’s decision isn’t just bad timing, but also a terrible underestimation of the power consumers have with so many streaming services available to them.
The main focus right now for Netflix should be to look around at all its competition and do whatever it can to keep its users engaged and content.
Be even more innovative
With all the competition nowadays, Netflix must continue to innovate in order to differentiate itself. Lucky for then, the company has always maintained a good record in that department. For the last ten years or so, Netflix has dominated the market in terms of creation of original shows and curation of its content. However, it’s not alone in doing so anymore. In addition to that fact, it seems like customers are not happy with just content – they want an experience. And that is what Netflix should be focusing on too.
Recently, the company released a “double thumbs up” feature, which is a great way to start. The new tool provides the user a better way to express what they like the most. In turn, Netflix is able to improve its personalized recommendations. The company also released a mobile game after one of its most popular shows with “Stranger Things: 1984” albeit maybe a little too late.
The main issue here is that, so far, the streaming giant hasn’t been able to overcome the likes of Amazon and AppleTV+ when it comes to diversifying their services and revenue with sales of other services, goods and hardware related to their original shows. It’s good that Netflix is starting to think outside the box, but it needs to do more to keep up with everyone else. Relying on its accolades will not work for much longer.
Get better use of its data
Netflix has undoubtedly been known as the company who revolutionized its business. Case in point: after its ascension, how many Software as a Service companies have pitched their ideas by going “we want to be the Netflix of…”? Not only that, but a series of business books have also acknowledged the company’s triumph over outdated video formats, taking the world into its digital phase. There is a perfectly good reason for that too. Netflix is one of the companies with the most consumer data in the globe.
So, why not employ it to better use? Not by advertising its shows – Netflix already has that handled – but by innovating its services. Continuous and powerful innovation comes directly from something Netflix has plenty of: customers. Netflix is more than able to create a virtuous circle by using its customer data info and leveraging on customer feedback. More data means more originality, which leads to satisfied customers, and in turn, more data.
In conclusion, Netflix’s churn rates are unfortunate. However, the company has what it takes to turn things around and return to its dominant status. It just needs to focus more on the three pillars of subscription services: consumer, data and innovation.
We all know the streaming giant has the range. Recently, it boosted Kate Bush’s song “Running Up That Hill” by 8000% just by playing it on a pivotal scene from its hit show Stranger Things. Follow the link below to learn more about it.
About the author / Aline Barbosa
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