Will Netflix’s New Low Cost Plan Save Them?

Oct 24, 2022 | Corporate Insights, No Bull Economics

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Netflix’s 3Q22 domestic financial results included +11% y/y revenue growth which reflected a -1% decline in users offset by a +12% increase in pricing. The ongoing decline in its user base (down -2.4% from a high of 75,215,000 at the end of 2021) is troublesome for the brand because it raises the question of whether the drop in users is due to economic weakness or whether it reflects a change in consumer behavior as it relates to increasing demand for in-person experiences (as to opposed to online/virtual experiences) as we previously discussed in this post. In any case, Netflix’s answer is to boost its financial performance by (1) eliminating the ability for users to share their passwords; and (2) introducing a new, lower-priced service that is subsidized by TV ads. Notably, Netflix’s new, lower-cost service is priced just below its main competitor Hulu’s service. The company also recognizes that a huge decline in content creation caused by the covid lockdowns is currently causing problems with demand for its streaming service (a log jam that may take several years to rectify). So, in the end, a lower price may not be what Netflix customers are seeking (even during a recession) as they have simply grown bored of what’s on TV. 

Netflix Financials Graph

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