Subscriptions

As Netflix Turns 22, Questions Remain About Subscriber Loyalty

Netflix

Turn off that TV show or movie — even if you are binge-watching this holiday weekend, just take a minute away from the addictive content — and wish a hearty happy birthday to the force more or less behind all your home-entertainment enjoyment.

Yes, Netflix is another year old.

The streaming and subscription service turned 22 on Thursday (Aug. 29). The trends sparked largely by this company since 1997 have led to new areas of commerce, new opportunities for payments and even potentially existential threats to Netflix in the coming months. But no matter what, Netflix will certainly go down in history as one of those companies that changed the world. That world is certainly lucrative. After all, U.S. consumers spend more than $2 billion a month on streaming subscriptions.

Ancient History

Those mailed DVDs that were pretty much synonymous with Netflix now seem like a part of ancient history (ancient history in this digital and mobile world of 2019 pretty much being what happened 12 months or more ago, of course). Who can forget the excitement of receiving a new batch of those thin silver disks — those red Netflix envelopes almost like the wrapping around a present — and the frustration and impatience of having to wait another few days to keep watching that series, or to get new movies?

Sure, binge-watching was possible way back then, assuming you had the right cable service or channels. But the experience was like riding a tricycle compared to the motorcycle we have now — thanks in large part to the massive amount of treasure Netflix has invested in original content, the strategy it has followed to win market share in this current world of streaming.

Personalized Recommendations

Before streaming, of course came other important steps — moves that are basically taken for granted now but were big news way back when if you stretch your memory and consult the archives (which in this case mainly means doing a semi-deep dive on Google). As one account of Netflix history reminds us, the company in 2000 — that quaint era of Y2K and a time when Amazon was still often viewed as a bookseller — launched its famous personalized recommendation engine, a souped-up version of crowd-sourcing, via which the wisdom of the masses guided individual consumers to new and relevant frontiers of entertainment. Users ratings are part of basically everything these days — even DMVs and county jails now have them via Yelp and other platforms  — but back then, that part of the eCommerce experience still felt pretty new and pretty exciting.

In 2007 — after the Netflix initial public offering (IPO), after the company had hit 4.2 million members two years before in a rapid growth rate that seems almost like a fantasy these days  — came the launch of its streaming service. And that brings us to the current day — as Netflix heads into year 23, streaming and subscription commerce are going through fierce changes that promise to set payments and commerce trends well into the 2020s.

Streaming and Subscription Changes

Just consider the big looming development in this particular part of the digital world: Disney’s new Disney+ streaming service is set to offer high-quality content streaming with its $6.99-per-month basic offering. Millions of consumers are figuring out if they will subscribe to the service, and if that means other subscriptions will lag or be discarded. Although the basic Netflix plan in the U.S. is more costly than Disney’s, Netflix tends to target a wider audience than Disney+ plans to target when it rolls out in mid-November. Netflix has a broad offering of content on its platform, but Disney aims to target primarily families and kids.

The Disney launch — along with the sharp competitive pressure from Amazon, which has also invested heavily in high-quality original content, and ties it all in with Prime membership —  comes as Netflix loses subscribers. In the second quarter of 2019, the company posted an unusual loss of some 130,000 U.S subscribers. Globally, Netflix brought on 2.7 million paid subscribers in the quarter globally, which was much less than the five million it had predicted. The figure was also under the 5.5 million it brought on in the second quarter of last year. The company last experienced U.S. quarter-to-quarter subscriber declines in 2011 following the rollout of a new pricing model that subscribers rejected and was ultimately discontinued.

Problem of Churn

Overall — and as PYMNTS has documented — subscription businesses have an overall churn rate of 5.6 percent. This is mostly due to voluntary churn — that is, cancellations — with a rate of 4.2 percent compared to involuntary churn (1.4 percent) which is usually the result of payment issues.

Even beyond Netflix, the issue of churn and how to stem it is becoming an increasingly important issue as the subscription model spreads to more areas of commerce and payments, and consumers become more willing to discard subscriptions without mercy when they are no longer needed (assuming consumers remember and keep track of which subscriptions they are paying for via those recurring payments, of course). This golden age of subscription commerce — crafted in large part by Netflix — brings with it massive challenges for subscription operators.

As fresh PYMNTS research documents, 26.7 percent of digital media consumers plan to end their subscriptions with a year. As well, 32.1 percent of streaming media consumers plan to shut down their accounts because costs outweigh value.

That research also shows a widening gap between leading subscription providers and the rest of the pack. According to the Index, Middle Performers, which make up 76 percent of the sample, saw their index scores decline, from 63.5 in Q1 2019 to 63.2 in in Q2, continuing a downward trend since 2017. Meanwhile, the top 20 providers improved their scores, earning 82.8 in Q2 2019, up from 80.3 in Q1.

Details Matter

Success in this world built by Netflix often comes down to the details of the consumer experience, not the content. The PYMNTS research found that consumers are acutely aware of any shortcomings in the experience subscription services offer. Those who have subpar experiences registering and using digital content platforms are more likely to cancel their accounts. For example, 42.4 percent of those planning to cancel their streaming subscriptions considered their registration experience “somewhat easy” at best, compared to 11.7 percent of those who plan to keep their subscriptions.

Another detail that matters are those reviews — and in that area, Netflix might be losing some ground. That’s because about a year ago, Netflix removed user reviews, which itself followed the elimination of star ratings. The apparent reason, at least according to reports? Not enough Netflix members used those tools. Ratings and recommendations remain. By contrast, Amazon still offers star ratings.

Overall, subscription commerce keeps growing, and certainly will in the new decade, no matter the ongoing changes in the landscape. American consumers are subscribed to an average of three different subscription services, up from 2.4 services five years ago, and 34 percent say they will sign up for more services within the next two years.

In short, that just means that both the subscription opportunities and challenges will continue to evolve at a quick pace as the industry Netflix played a large part in creating attracts more players and more consumers, and reflects ongoing consumer desires and demands. We here at PYMNTS could write about this fascinating subject all day and into the night and then some — think of it, perhaps, as binge writing. But this seems like a good place to hit the stop button. After all, it’s time to get back to your shows and movies. Happy Birthday, Netflix, and happy watching to all you PYMNTS readers.

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