As the streak of issues constituting economic headwinds continue to pile up, compounding its revenue crisis, Netflix is expected to record further downturn in 2023 in the UK.
Netflix’s UK consumers are battling with increasing cost of living, forcing them to cut down on expenses that have inadvertently impacted the streaming platform’s revenue. The company introduced ad-supported cheaper service last year, following massive drop in its subscribers’ base, but it’s taken time to win over consumers.
Netflix recorded a loss of about 500,000 subscribers last year, and is expected to lose further 200,000 in 2023 as the UK economy struggles. This is also as it takes on the rising influence of new competitors such as Disney+, which has amassed market-leading growth of 1.4 million subscribers since it was launched in the UK in early 2020. The company is expected to have 6 million subscribers this year in the UK.
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Netflix started making changes early this year, including cutting the workforce. In April, when the world’s largest streaming service announced ad-supported service, it had already lost millions of subscribers globally.
It launched the ad-supported subscription in the UK and other markets in November, at the cost of £4.99 a month, which is £2 less than its current cheapest option. With increasingly declining revenue, the company also announced that it’s canceling its password-sharing service feature.
However, the changes, which were geared toward acceleration of its subscriber’s growth, did not yield immediate positive results due to global economic strains, which very much affected the UK that was hit with about 11% inflation – a four-decade record.
“The company, which has cut staff and become more disciplined with its $17bn (£14bn) annual content budget after earlier this year reporting its first global subscriber declines in a decade, will have seen its UK user base drop from 14.2 million to 13.7 million this year,” research firm Ampere Analysis said.
Netflix recorded a loss of 200,000 subscribers in the first quarter of 2022, its first in a decade. It is said to be the only major streamer to have lost subscribers in 2022. The streamer is the UK’s most popular service. But in 2021, the company gained only 800,000 subscribers, its lowest since launching in the UK in 2012, as consumers approached “peak Netflix”, per a report by the Guardian.
However, Netflix had an uptick in subscription last year. The company saw 2.4 million subscriber’s growth in the third quarter of 2022, beating projection. The growth was attributed to series such as Dahmer and Stranger Things 4, per Guardian.
“Given the wider economic pressures the UK is facing I’m not expecting Netflix to go back to growth in 2023,” says Richard Broughton, director at Ampere Analysis. “Our base assumption is Netflix moves back into growth with the UK economy, which is likely to be 2024.”
Given the slow recovery of the UK economy, Netflix growth is expected to experience longer recovery. The streaming service is forecast to lose about 200,000 UK subscribers in 2023, and Prime Video is set to contract by about 100,000, according to the Guardian.
But besides the UK’s economic headwinds, competition from other streaming service providers is another challenge to Netflix. Disney+ is predicted to continue to show strong growth, adding an expected 1.4 million new customers this year. The newest UK entrant, Paramount+ has rapidly amassed about 3 million users with contents such as Star Trek, Strange New Worlds, Yellowstone, Halo and Top Gun 2.
However, Netflix is expected to see an increase in revenue as a result of advertising. Ad-supported service is expected to increase the rate of new subscriber growth over the medium term.
Ampere estimates that the ad strategy will eventually pay off by boosting Netflix subscriber numbers 4% more by 2027 – 255 million global subscribers compared with 246 million – than would have been achieved sticking to its previous strategy, per the Guardian.
While Netflix’s revenue from subscription is expected to drop to $36 billion, the company is forecast to bring in $43bn in total revenues, with ad revenue growth of $7 billion in 2027.
“It is difficult for a business of the scale Netflix has reached in many markets to grow. It has hit a ceiling on price this year. When Netflix raises subscription prices now there is a lot of churn; there never used to be. Ultimately, the new ad tier will help the company to recapture more price sensitive consumers,” says Broughton.