They’re calling it “the correction quarter” after the latest Netflix earnings report interrupted what had looked like an ongoing victory march for the streaming service during the pandemic period. Shares dropped 10 percent in after-hours trading.
The great reckoning was over the growth of Netflix’s subscriber base which added a scant 4 million new users in Q1, missing the forecast 6 million by a wide berth. The bad news was compounded by Netflix’s forecast for only 1 million paid net additional users in Q2 — down 9 million from Q2 2020.
The fall-off in Netflix sign-ups is likely attributable directly to the rolling back of COVID-19 worldwide as vaccines go out. The service added 26 million new subscribers in the first half of last year, as a lot of homebound people were looking for things to watch, and now the firm is facing the effects of that tailwind dying off.
It may be a sign that consumers are perhaps getting ready to pull back on all of those subscriptions that the pandemic pushed them to sign up for. According to PYMNTS 2021 Subscription Commerce Conversion Index, a sticky.io collaboration, the pandemic period has been very good for business. Thirty-four percent of all subscribers (14 million U.S. consumers) have signed up for at least one new subscription plan since the pandemic began. Sixty-two percent (8.4 million) of these consumers are subscribing for products and services directly from manufacturers, while a majority say they use such subscriptions to try interesting new products, get higher quality items or “have fun.” Moreover, PYMNTS research shows that the number of consumers with retail subscriptions has increased by 99 percent since 2020.
Subscriptions, particularly in the last year, have been incredibly effective in bringing consumers in. Keeping them signed on, however, is a whole other challenge, as PYMNTS data show that churn remains a persistent problem in the industry. Some 33 percent of consumers are churning out as soon as free trials end — or worse, creating new accounts to abuse free trial programs.
In an interview with Karen Webster, Sharath Dorbala, CEO of subscription management platform Vindicia, noted that subscription services are moving toward tailored, bundled models that, ideally, craft a sense of belonging as holding on to customers is becoming every bit as critical for subscription platforms as signing on new ones.
“If you really want to win in this field, use the data, use the intelligence, use the insights — and start building your retention strategies. Retention is the new growth,” Dorbala said.
Which leads back to the Netflix earnings, and whether the correction the streaming service has been hit with is a bit aggressive given its churn rate. Netflix’s churn rate declined in Q2, and has been historically lower than its peers in the industry as Netflix has gotten quite good at holding on to the new eyeballs it captures.
“We had 10 years where we were growing smooth as silk,” Netflix Co-Chief Executive Reed Hastings said before noting that the firm expects to see its membership figures re-accelerate in the second half of 2021.
And the Netflix stumble, notably, isn’t doing much to dissuade the ongoing growth spurt underway in the subscription segment, with big announcements from both Apple and Microsoft this week about their intentions to expand their offerings.
Apple is pushing a new podcasting subscription service, which starting on May 1 is offering subscribers in 170 countries access to premium subscriptions that include a variety of benefits.
“Fifteen years ago, Apple took podcasts mainstream, offering creators a premier, open platform to inform, entertain, and inspire hundreds of millions of listeners around the world,” said Apple Senior Vice President of Internet Software and Services Eddy Cue. “Today, Apple Podcasts is the best place for listeners to discover and enjoy millions of great shows, and we are proud to lead the next chapter of podcasting with Apple Podcasts Subscriptions. We’re excited to introduce this powerful new platform to creators around the world, and we can’t wait to hear what they make with it.”
Meanwhile Microsoft snapped up some headlines with the news of its Xbox Cloud gaming system (called XCloud) that gives subscribers access to XBox gaming content outside their gaming consoles through web browsers, PCs, Macs, iPhones, Androids, iPads, etc. Dubbed Netflix for gaming, the moves marks Microsoft the first of the big consoles makers to migrate beyond the hardware in bringing their gaming content to the masses.
Is it a move going into a market full of subscription-fatigued consumers? Hard to say. Netflix sign-ons are always cyclical and the company’s high hopes for the second half of this year combined with low churn rates seemed to indicate that it might be early to conclude consumers are sick of subscriptions.
But how many more they are going to take on particularly when the outside world is offering up options again? That very much remains to be seen.
Read More On Subscriptions:
- Netflix Hits 208 Million Paid Memberships As Growth Slows
- Subscriptions Platform Chargebee Lands $125 Million In Venture Funding
- Study: US Consumers Weigh In On D2C Conversions And ‘Must-Haves’ Vs ‘Nice-To-Haves’
- GameStop, B2B Payments, Subscriptions Top This Week’s News
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