Netflix: Households are skipping pleasure subscriptions because of inflation, a threat to Netflix

(BFM Bourse) – British households are increasingly giving up their subscriptions to streaming and video-on-demand platforms, faced with the rising cost of living. With 6% inflation posted in the UK in the first quarter, spending on pleasure is being sacrificed on the altar of declining purchasing power. This phenomenon of unsubscription for budgetary reasons could affect other leaders in the entertainment and leisure sector…

Since the first frosts of winter, the question of purchasing power has preoccupied the financial markets but also consumers. The rise in fuel prices foreshadowed a more general trend. So-called constrained expenses such as rent, electricity or quite simply food continue to weigh on household budgets around the world. In this context, households have a natural reflex, that of tracking down the slightest superfluous subscription. For some of them, it is no longer a question of saving a few euros but a vital parade to manage to make ends meet. And it’s starting to show in some countries like the UK.

Will the hunt for “incidental expenses” dethrone cricket from the flagship national sports across the Channel? If the information makes you smile, it reflects a real trend in England. With inflation of 6% posted in the United Kingdom in the first quarter, streaming and video on demand (SVOD) platforms such as Netflix, Amazon Prime Video or Disney + are at the top of the leisure activities sacrificed on the altar of the decline. purchasing power.

Black screens on UK video subscriptions

More than 1.5 million subscriptions were canceled in Q1 2022 in the UK, according to research by Kantar. The trend has accelerated since a quarter earlier, Kantar counted only 1.04 million unsubscribes. Above all, the rate of defections is likely to intensify. Also according to this same survey, 38% of British households would consider abandoning their subscriptions against 29% in the fourth quarter.

Disney Plus has been the main victim of the “hunt for incidentals”. The entertainment giant’s platform suffered the biggest increase in its churn rate. The latter tripled compared to the previous quarter to reach 12%. In this context, the small screen could finally take its revenge, neglected by the competition of these SVOD platforms and their big budget series like Squid Game or Casa de Papel to name a few.

The introduction of advertisements in the offers offered by streaming platforms, in order to reduce the pain, is also making its way. The Kantar study thus reveals that 44% of British households are ready to deal with a little advertising to lower their subscription bill. They were 38% last year at the same time. The platforms have clearly perceived this change in consumer behavior. They, in turn, are beginning to offer a service interspersed with advertisements to keep, or better, capture a clientele concerned about their purchasing power. Disney + has sniffed out the trend and plans to launch a formula with advertising this year in the United States before extending it to the rest of the world next year.

With 2.4 subscriptions taken out on average per household, the British are an excellent laboratory for consumption habits on the small screen. According to Kantar, this trend visible across the Channel should concern other countries.

More sound, more picture?

Netflix is ​​beyond measure the main victim of this paradigm shift. In the first quarter of 2022, the king of streaming lost 200,000 subscribers over one year. Unheard of since 2011. Worse still, the ex-star of Wall Street plans to lose 2 million subscribers or more in the spring. On the stock market, the sanction was immediate, marked by a 37% plunge in the share price. More than 50 million dollars of capitalization went up in smoke on the session of April 20th alone.

The various increases in the price of the subscription and especially the tightening of the rules on password sharing have got the better of the loyalty of the subscribers of the streaming platform. The tide is turning for Netflix and it is not new. Last quarter, the group had begun to put investors in the mood. Netflix had conceded to expect to gain 2.5 million new subscribers in 2022 where analysts expected almost double the number of recruitments. The title had a first time accused a fall of more than 20% after this disappointment.

Accustomed to stock market peaks, the darling of Wall Street is only a shadow of itself. The title is on the carpet, devastated by a drop of more than 60% in its value since the beginning of the year. To stem the bleeding, Reed Hastings, co-CEO Netflix is ​​now ready to market a cheaper subscription offer but with advertising. An alternative that he had always refused to study until then. But for the past two years, Netflix has had to deal with increasingly fierce competition with the rise of rivals HBO, Hulu or Amazon, not to mention Disney +, whose success is well established.

Deliveroo and Spotify also under pressure

This phenomenon of unsubscription for budgetary reasons could affect other leaders in the entertainment and leisure sector. The London-listed Deliveroo platform warned earlier this year “of headwinds due to inflationary pressures, the withdrawal of economic aid” put in place during the pandemic and “the political and economic impact of the conflict in Ukraine. “. Gross transaction value per order – the equivalent of the average basket – was down 5% year-on-year to 21.4 pounds in the UK, continuing to return “to pre-Covid levels.” Introduced at 390 pence, the action of the meal delivery giant is currently stagnating around 110 pence.

Also across the Channel, AJ Bell, one of the UK’s largest investment platforms, saw its assets plummet in the first quarter of the year amid inflation and uncertainty from the war in Ukraine having weighed on the appetite of individual investors to take risks on the markets.

Spotify could also bear the brunt of the hunt for “pleasure” subscriptions. The Swedish group listed in New York still bears the scars of the scandal around podcaster Joe Rogan, whose controversial content had caused the departure of leading artists from the platform like Neil Young. The beginning of the stock market year is complicated for the online music giant with a title that drops more than 30%. The Swedish music streaming giant’s slowing growth is raising market concerns. The pace of recruitment of paid subscribers will be closely monitored during the group’s next publication scheduled for next week.

It is in this particular context that Deezer will once again attempt to go public this summer, seven years after a first failed attempt due to unfavorable market conditions. Like its listed counterparts, the nugget of French Tech will in turn have to convince of its ability to recruit new subscribers. Otherwise, the penalty may be commensurate with the disappointment of investors.

Sabrina Sadgui

©2022 BFM Bourse

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