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April 22, 2022

Netflix is in denial when it comes to the saturation of its key markets

As Netflix subscriber numbers tumble, the company finds itself in an entirely different landscape from its pandemic heyday. The news that the streaming platform had experienced a net loss of subscribers for the first time in a decade added to concerns that the company’s revenue growth is starting to stall. As a result, Netflix’s shares plummeted 35% while billionaire Bill Ackman sold his 7% stake in the company at a $400 million loss.

Netflix’s earnings also pose questions about the long-term sustainability of the streaming market as platforms continue to spend billions on content in a bid to attract a dwindling number of subscribers. Seven months after Squid Game became the platform’s most-watched series, the landscape has dramatically changed. The mantra that ‘content is king’ appears to have lost its luster, with large slates of content acting as no guarantee for sustaining subscribers.

Netflix’s typical markets are nearing post-peak stream

Although Netflix discussed unlocking new subscribers in its key markets through a crackdown on account sharing and the rollout of a lower-cost tier that includes ads, these markets are clearly showing signs of saturation. A GlobalData forecast reveals the limited scope for growth in Netflix’s typical markets, with US SVoD unique penetration expected to reach 87% by the end of 2022 and 92% by 2026.

The competition will also intensify in the US market as platforms such as Amazon Prime Video, Hulu, Disney+, and HBO Max develop their content portfolios and pricing options. As a result, Netflix’s market share of subscriptions in the US is expected to fall from 25% in 2020 to 16% in 2026.

Emerging markets will be key to the next phase of the streaming wars

As Netflix’s era of dominance in its typical markets wanes, the platform also finds itself in a notably weak position in emerging markets. According to GlobalData forecasts, India holds one of the greatest opportunities for growth, with subscription-video-on-demand (SVoD) penetration expected to increase from 24% in 2021 to 42% in 2026. But despite this growth opportunity, Netflix has been slow to secure its market position in the country, holding just 4% of subscriptions.

Contrastingly, Disney+ Hotstar constituted 57% of India’s subscription market share in 2021. Disney+’s dominance in emerging markets such as India has helped to boost subscriber numbers and although revenues from these accounts are lower, it has undoubtedly provided a level of reassurance to investors.

Netflix is struggling in India

Meanwhile, the reasons why Netflix has so far struggled to unlock the potential of the Indian Subscription video-on-demand (SVoD) market are twofold. The price point and content offering of the service have posed a serious problem to growing its subscriber base. Although the company has since slashed its prices to accommodate much lower disposable incomes, the initial lack of affordability cost Netflix its market position, allowing competitors to dominate.

In addition, criticisms surrounding confused cultural references in Netflix Originals such as Meenakshi Sundareshwar have only exacerbated Netflix’s weak position in India’s SVoD market.  Although account sharing and the rollout of a new ad-based membership will go some way to boosting revenues, the company should consider broadening its view beyond its typical markets. Strategic, regionalized content initiatives represent another way of unlocking new audiences that could provide Netflix with serious bang for its buck.

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