1. The Sky Stops Falling On Netflix

Netflix had their Q2 earnings call this week and Wall Street reacted far more favorably to the news that they’d only lost 1MM subscribers this quarter than they did to the news that they’d lost 200K subs in Q1. Probably because Netflix had been expected to lose 2MM subs, but still.

In other news, CEO Reed Hastings seemed to imply that there would be multiple tiers of the ad-supported service that map to the multiple tiers of the current service (the ones that only Hastings and his cohorts seem to be aware or) 

And they’re still planning to crack down on password sharing which is apparently now a problem.

Why It Matters

Let’s start with subscriber loss. Losing 1MM subs, largely in the US and Canada, is not all that surprising.

Many people likely signed up during the pandemic and then decided that they didn’t need a streaming service they barely watched, especially a $15/month streaming service they barely watched. Maybe they found they watched other services more, maybe they just don’t watch a lot of TV, streaming or otherwise. 

Regardless, 1MM subscribers is less than one percent of Netlix’s total subscriber base.

There’s also the saturation factor, something I remain surprised Netflix has not gotten ahead of. 

Around two-thirds of US households have a Netflix subscription. So it’s safe to assume that at this point pretty much everyone who wants a Netflix subscription already has one. (For comparison, 80% of US households have smartphones.) So there’s not a whole lot of room for growth there, especially given that Netflix is not the only game in town.

Subscriber growth is up, however, in India, where Netflix has had to reduce their price from around $10US to around $5 all the way down to $3. While it’s unclear if they are actually making money on an ad-free service priced at $3/month, if they are, they’ve got themselves a roadmap for the rest of the world’s emerging economies.

So there’s that.

Then there is advertising.

It remains even more baffling to me that they did not understand that they would need to run advertising in most of the world, given that few people in many of the 130+ countries they’ve planted their flag in have disposable income period, let alone disposable income that would allow them to pay for a premium ad-free subscription service.

Which then begs the question as to why Netflix’s advertising announcement sounded like “THE SKY IS FALLING!! REPEAT, SKY IS FALLING!! LAUNCH NUCLEAR OPTION NOW!!”

Versus, you know, calmly announcing the ad launch as part of an overall expansion and realignment plan, one where Netflix had already chosen Microsoft as their ad partner.

Finally, there is the password sharing thing, something they’ve spent years proclaiming was not a problem. Until of course it was.

It’s going to be a very tricky thing to fix, too.

People get that sharing passwords with friends is uncool. 

But kicking out adult children who have been on the family account since they were teenagers is a different story.

Especially because in the US there is no incentive to remove them from family cell phone plans or, for that matter, from family health insurance plans, where they are able to stay until age 26.

So Netflix is going to have to find a way to handle that one that does not alienate subscribers and make them feel like criminals, bad parents or both.

What You Need To Do About It

If you’re Netflix, just be honest with Wall Street about your prospects for subscriber growth in the US and the likelihood that you’ve reached saturation point. And that given the proliferation of other ways people can use their leisure time (social media, gaming, podcasts et al) TV is unlikely to ever regain the numbers it had back in the early 90s, and that is why Netflix is unlikely to ever get to that level of market share. 

Then concentrate on growing your subscriber numbers in places like India, Indonesia and Congo where there are hundreds of millions of potential customers but no easy path for you to get them as subscribers, given the average income levels in those countries. (Hint: you will need to launch a FAST service. But so will everyone else.)

Finally, you have shot yourself in the foot multiple times with the password sharing thing. First, by announcing to anyone within earshot that it did not matter to you. And then by burying the existence of your more expensive Premium tier, the one that allows for up to four simultaneous viewers at once for $20/month. People might have gone for it, especially when it was a bit cheaper, but now… that’s going to be a hard sell. 

Especially given that few of those 24 year olds are likely to consider a Netflix subscription important enough to actually pay for it out of their own pockets.

That said, the program you have going in Latin America where people can pay a little extra to have additional family members on their current plan seems to be the way to go—just tone down the “we’ve been monitoring you” part.

People find that stuff to be creepy AF.

2. Hulu Is Disney’s New Superhero Franchise

A new study from Antenna indicates that Hulu is the new golden child of the Disney empire, drawing in more new US-based subscribers than sibling Disney+ during the last six fiscal quarters.

While Hulu tends to be the Jan Brady of streaming services, its success should not be all that surprising: Hulu appeals to a much broader albeit less obsessive audience than Disney+. (Despite the constant drumbeat from many of the trades, there are a whole lot of people who have zero interest in comic book characters and Star Wars franchises.)

Hulu has another thing going for it too: this season’s programming from both ABC and NBC. That’s something else the industry tends to downplay—the number of people who care about network prime time shows and are happy to have a low(ish) cost way to watch them a day or two after they first air.

It also puts Hulu (and for that matter, Paramount+ and Peacock) in a very different position than the other major SVODs in that in addition to originals, they can offer viewers a goodly amount of exclusive recent programming, versus other SVOD services like Netflix, where the library content is almost exclusively tried and true favorites.

Why It Matters

Hulu’s success is oddly not a total win for Disney, mostly because in an ideal world they would do away with the service and merge it into Disney+, a path they’ve been taking in much of the rest of the world.

It’s not that they have anything against Hulu per se, it’s just that there’s little value for Disney in having two competing SVOD services given the additional costs associated with maintaining and promoting them.

But that is the least of their Hulu-related issues.

The big one is what to do about Comcast, which still owns one-third of the service, which, if you recall, was originally set up as a joint venture of sorts between Comcast, Disney, Fox and AT&T. Disney bought Fox and then bought out AT&T, leaving them with a 67 percent share of the company and a deal to buy out Comcast’s 33 percent in 2024.

All well and good, only the more successful Hulu is, the more money it will cost Disney to buy out Comcast. A predicament further complicated by the fact that if Disney does buy out Comcast, the latter will likely take all of the programming it has on Hulu with it, making Hulu less desirable after the fact.

So a serious mess.

What You Need To Do About It

If you’re Disney, and you can swing it, wait to see how the HBO Max/Discovery+/CNN merger goes and use it as a roadmap as to what to do/not do when merging Disney+, ESPN+ and Hulu into a single app. (Or not—you may decide, after watching HBO Max/Discovery+ that a combined mega-service is a very bad idea.)

Mostly though, you need to start thinking of Hulu as a real asset and building off its success.

Don’t forget about Hulu Live TV either—there will be many people who use vMVPDs as a way to wean themselves off cable and you want to be there with a competitive offering to greet them. 

So focus on the service, the advantages it has over YouTube TV and the value of having all that Hulu, Disney and ESPN+ content included in the bundle.

Oh, and if you think about it, put the YES network back into the bundle, even if there’s an extra fee for it—on behalf of Nets fans everywhere, that gesture would be greatly appreciated.