25 years ago, Reed Hastings founded a DVD mail order company with a partner in California. Two years later, the discs could also be ordered online, and then a subscription system was introduced. In 2007, Hastings radically changed its business model: the DVD distributor soon became a global streaming service that brought its films and series to customers online – with currently 220 million paying subscribers worldwide.
Netflix is now facing a new, again very fundamental turn: From November onwards, the US company will be introducing a significantly cheaper subscription in its twelve most important markets, in which case the series and films will be interrupted by advertising clips for up to five minutes every hour. Hastings was always enthusiastic about the idea of offering a subscription-financed and exclusive program without any advertising. Watch what and where you want, without annoying interruptions and can be canceled at any time – that was the concept with which Netflix also wanted to stand out from the television stations. This is exactly how the company became big and successful. That was the hallmark.
So now the turnaround, the business idea is changed again – but will that lead to success?
“We’re still early, but we’re pleased with the interest from both subscribers and the advertising industry,” said Greg Peters, Netflix’s board of directors responsible for operations. In addition to Germany, Netflix is also introducing the new offer in Australia, Brazil, France, Italy, Japan, Canada, Korea, Mexico, Spain, Great Britain and the USA. Other countries are to follow. In Germany, the new offer will cost just under five euros a month (the basic subscription is currently available for eight euros, the standard subscription from 13 euros). The new prices vary worldwide and are sometimes higher than in Germany. In the US, for example, the advertising subscription is offered for seven dollars. Higher picture quality, use on multiple screens and the option for downloads are not possible with the new subscription.
The big hype at Netflix is over for now
What is certain is that Netflix has not been doing well recently. The number of subscribers is no longer increasing, but is even decreasing, albeit only slightly. The stock has fallen by more than 60 percent this year, the big hype is over. In the years before, things had only gone up, the number of customers kept going up, and profits were made. Netflix invested a lot of money in its own series and films and also won international awards. “House of Money” from Spain, “Babylon Berlin” from Germany, “Squid Game” from South Korea are just a few examples that Netflix stands for.
Reed Hastings founded Netflix with a partner in 1997, back then as a DVD retailer.
(Photo: Tobias Hase/AFP)
But now the competition has become increasingly fierce. Amazon Prime and Disney + have come close to Netflix. In Germany, the large private broadcasters have set up their own streaming services – Pro Sieben Sat 1 with Joyn, RTL with RTL + and are thus also attracting Netflix customers. There are also providers such as Sky, whose streaming offer is now called Wow, and the sports provider Dazn. The selection is now confusing. At the same time, consumer budgets are shrinking in the face of economic downturn, energy crisis and high inflation.
The consulting firm Deloitte has just found in an international study that growth in the highly competitive streaming market is slowing down. The providers therefore focused on streaming offers with advertising “to create new incentives with cheaper or even free entry options”. This has already been tested in the USA and Asia. “In Germany, 31 percent of those surveyed can imagine starting streaming with commercial breaks, with the willingness in the younger age segments being particularly high,” according to the study.
That’s exactly what Netflix is hoping for. The advertising industry should be enticed by the fact that the clips can be switched to suit the target group. Those who watch the cult series The Crown, about the intrigues of the British royal family, see something different than fans of action or fantasy films. Waste coverage, such as that advertisers complain about on free-to-air television, is then lower. Experts assume that Netflix can generate high revenues. In addition, the cheap subscription can also be used to win over those who previously watched with someone else’s subscription.
Was watched more recently after the Queen’s death: The Netflix series “The Crown”.
(Photo: Robert Viglasky/AP)
On the other hand, the risk is also great. On the one hand, the unmistakable brand identity is lost, and Netflix becomes one of many streaming providers. In addition, Netflix could take the customers away from itself. Younger subscribers in particular and those who pay attention to the price in the crisis would then switch to the cheaper tariff. The total number of customers would not increase significantly as hoped, but revenue would decrease. Some even believe that the streaming boom as a whole is reaching its limits. Netflix will show it.