Netflix’s recent Q2 financial results rightfully shook The air of invincibility and unflinching investor confidence which has cloaked the subscription video on demand (SVOD) pioneer for years.
In Q2, the seemingly unthinkable occurred — the movie giant drop U.S. readers for the first time and hugely missed global growth goals. In the wake of the sobering realities, among the most debated subjects over the past two weeks has been whether the video giant finally will relent and include advertisements to expand its general earnings story.
Short answer? Netflix must add ads — and do even more — to survive longterm (at least as an independent). The company’s current myopic subscription-only business model simply does not pen out in a world of ever-accelerating content development and ever-diminishing yields on the consumer acquisition front.
Let’s not overlook that Netflix NFLX +0percent ‘s debt load has ballooned over the last few decades even during its golden era of hyper-growth.
And Netflix blow as new mega-SVOD Competitions Apple AAPL +0percent , Disney, and AT&T T +0percent soon will combine current ones like Amazon Prime Video — most of which can be hell-bent on stealing share from Netflix and all of that are basically differently located. Contrary to Netflix, these behemoths drive vastly different business models with multiple revenue streams, for that their SVODs can function as a marketing investment. For these fortunate behemoths,”success” is defined quite differently. Apple TV+’s central mission is to drive more iPhone, Mac and Apple TV sales. AT&T/WarnerMedia’s upcoming HBO Max raison deter is to drive more AT&T wireless plans and increase customer retention. Meanwhile, Amazon Prime Video is Jeff Bezos’s smart trick to”prime” the Amazon Prime entry pump and keep us store, shop, shopping.
You get the point.
Unlike pure-play video service Netflix, these wannabe”Netflix Killers” can actually drop money working their SVOD providers, provided that those services are a means to a greater corporate end. Video functions as their Trojan Horse to lure us into their unique kingdoms — and keep us there — to decorate in myriad ways. Netflix can’t keep raising its subscription prices in the face of its mega-competitor’s resilient company models. These behemoths can actually slash their costs, so long as their marketing”works” So, maybe not one of them alone will slay the almighty SVOD giant. Buttogether, the challenge – as it stands – is daunting. Departure from 1,000 cuts.
Unless Netflix ultimately does something to change the current condition of Items, which it must.
However, will that”something” be advertisements?
Yes, that will happen at a certain point (but it certainly won’t happen in The near-term as such other giants input the SVOD ring). Most likely, Netflix will present a Hulu -like two-tier subscription plan to expand its monetization possibilities. One lower-priced tier which is ad-supported, and one higher-tier strategy that is not.
However, let’s be clear, Netflix need not — and likely cannot — dwell on advertisements alone. Fortunately, the company is well-situated to successfully drive other revenue streams, and those streams indeed must flow for Netflix to survive long term as a pure-play. Product is one obvious possibility. In the end, Netflix’s brand is equally respected and ubiquitous. Cool merch could add some cool money to the coffers. But, that certainly is not sufficient to address its long-term existential tragedy.
More tantalizing is the chance — and also significant potential opportunity — for Netflix to expand its brand out our living rooms and into the real world.
To put it differently, into the world of out-of-home adventures . Amazon is the model here – its strategy, diabolically brilliant. Yes, shopping malls and retail shops near in record amounts. However not for Amazon, as evermore reddish brick buildings rise amidst the ashes of other people and evermore physical shopping carts fill the aisles in Whole Foods. Amazon’s offline intrusion into our bodily lives extend its brand and contributes to deeper, more 360-degree participation and monetization. Netflix should emulate Amazon’s 360-degree plan and expand its brand and customer experience into real life too, thereby expanding and transforming its monetization chances.
1 possibility – already widely rumored – is for Netflix to acquire a movie theater series . That may be Smart, very smart. Imagine the possibilities. Netflix could achieve what MoviePass couldn’t. Remember MoviePass, that”too good to be true” $9.99 monthly boundless motion theatre subscription service that is now basically dead because of its own success (and bravado)? Netflix could offer its top-tier subscribers the added plus of a subscription film theater experience for its films. Imagine exclusive engagements for these Netflix VIPs. Exclusivity always sells. Consumers are prepared to pay for that – perhaps much more.
Netflix’s support of out-of-home in-theater movie experiences would have the Added benefit of currying favor with Hollywood talent and the Motion Picture Academy itself. It would also cause invaluable Oscar buzz because of its showcased movies — accolades which are increasingly crucial to maximize customer acquisition and retention in such persistent SVOD wars.
Netflix, in other words, could drive a virtuous circle of new participation and monetization — the online Netflix experience driving the Netflix offline experience — and then back again. This Amazonian 360-degree strategy hastens grip in the two worlds and fosters real-world interaction to boot up. Dare I say, humanizing the brand from the process, thereby making us more invested in it? Remember, Netflix just shed U.S. subs for the very first time.
As Opposed to allowing us to create our own popcorn at home (with no payment to them), Netflix could pop it for us outside our homes — And market it to us.