The Netflix share price crash is no great surprise when it has been operating in an environment of hubris for quite some time. To all intents and purposes it sells a single product and operates on the logic that deep, consistent content provides the stickiness needed to keep people subscribed, in an environment of increasing pricing. Product extensions are about resolution, screens and downloads, not content choice which to me is the prime benefit of TV watching. The stock market is engineered for increased growth to keep it happy and there are many headwind elements running against a growth mantra.
Lets look at the elements that should drive cause for concern :
- Increased Competition And Availability HBO Max, Disney plus, Peacock, Roku Channel, Paramount, Tubi, Apple Plus, Youtube TV, Amazon Prime are all now available cutting into watch time and in all cases provide wallet relief along with this. HBO is often bundled free with AT and T streaming, Apple Plus is free for 3 months with a new device, Paramount was provided free (ad supported) with T mobile cell plans, other apps are free as a basic operating cadence (Roku/Tubi), Disney Plus is a moderate cost upgrade to a Hulu plan and Amazon Prime is bundled with your shopping cadence. I have only so much time, do i really need a $19.99 Netflix plan all year?
- Entry Price Point I have to pay $15.49 for an HD Netflix plan in the USA versus entry price points for zero (Roku/Tubi or free bundles) or as a little as $6.99 to $9.99 for other streamers.
- Product Entry Points Most brands need differentiated products to hit entry or premium markets(look at the car industry- Lexus/Toyota, Nissan/Infiniti). Other than price differentiation, Netflix has one product. The lack of an ad supported product removes a true entry level price product, for emerging and mature markets.
- Netflix product lacks the sell up approach fundamental in product lines, adding HD, 4k, downloads as product extensions to drive price upgrades, does not cut it. You are now competing with Sky in the Uk that offers streaming soccer, entertainment, movies etc as part of a package choice, in some cases, hinging on sports. If I have Sky sports (Now TV), movies and entertainment (which contains HBO content), do i have time for a Netflix subscription? In the USA we have Paramount, CBS and Amazon offering sports included as part of their offerings, product extensions drawing users into the offering.
- The loyalist gets no discount - there are no annual plans for a brand loyalist who subscribes for the year. A subscriber can just churn as needed, dependent on time and program launch dates. More likely at the higher prices that now exist.
- Band perception of price gouging - to chase wall st growth needs, simply adding more cost to users through password sharing restrictions will not only damage the brand but cause more churn and drops. They are in the presence of increased competition and the lack of a true entry product for users to drop down to. Illegal password sharing needs to be separated from family account sharing, a universal price increase will, in my view be detrimental to the brand and use patterns. I for one, will be done.
Ultimately consumers love brands as they feel they provide true value and meaning to their lives and spend more if they feel they get the value. With Netflix, i think that needs to be questioned, simply jamming more universal content into a pricing model based on users and tech specs (downloads/resolution) probably wont drive brand love.
The thirst for growth is paramount in Wall St, we are in an era of more streaming competition, lower priced competitors, more diverse programming and entry price products against a fixed amount of consumer time.
Netflix needs to be way more innovative to reignite the flame.
