Netflix, long the biggest name in streaming, is undergoing perhaps its most important period of transition in 2023 since the company dove headfirst into original programming over a decade ago.
Fresh off a strong Q4 and full year earnings that blew past analysts’ expectations in terms of net new subscribers added, the company has reached an enviable state of maturity in a competitive landscape full of challengers. As Netflix prepares to be led by someone other than Reed Hastings for the first time in nearly a quarter of a century, the company faces an increasingly competitive landscape marked by emerging platforms competing for a slice of increasingly scarce audience attention, a new ad-supported model needing to land with effect and shifting consumer patterns post-pandemic, all of which suggest the streaming wars are only poised to escalate in the coming years.
Looking to the next 24 months, there is one key area of focus for Netflix’s new Co-CEOs, Ted Sarandos and Greg Peters, to nail to emerge even more successful: leaning in with a clear focus on retention strategies.
Why customer retention matters most
The streaming landscape is exponentially more competitive today than when Hastings pivoted the company away from DVD rentals in 2011.
While every service has focused on acquisition targets over the years, the real fight for the future of the streaming wars will be waged on the battlefield of retention.
Consumers want to watch the latest programming no matter the platform, but they have also clearly signaled they are not willing to exchange a $100 cable bill for $100 in streaming subscriptions. The average U.S. home today is willing to have just two subscription services at any one given time. The challenge for Netflix is to not only grow their base, but hold onto their subscribers who are increasingly adopting the “cycling” mentality. Younger viewers in particular are very comfortable signing up for a service to watch a singular program only to promptly cancel the service once that show ends, and then cycle to another. This "subscription cycling" trend is a major issue facing all streaming platforms and is rewriting our definition of the lifetime valuation of subscribers and ARPU in general.
The Harris Polling company shows that 29% of Connected TV viewers have cycled in the past six months, and 69% plan to cycle within the next six. Surprisingly, the number one reason audiences give for cycling is not related to cost. It is that they simply couldn’t find anything else to watch on the service.
Herein lies the opportunity for Netflix, as the streamer is already faring better than every other platform when it comes to this challenge. Of all the services analyzed, Netflix has the lowest percentage of viewers watching only one program in their top 50, which is one of the key indicators of platform health necessary to stave off churn.
To continue to stay ahead of shifting consumer patterns like cycling and remain a “must have” streaming app, Netflix needs to continue to ensure they have multiple pieces of engaging content that speak to their audiences' nearly insatiable appetite for rapidly consuming content.
Most Netflix tentpole shows find a third to as much as a half of all viewers binge-watching entire seasons in a matter of days, leaving millions of viewers hungry and waiting for new content. The sheer mass of content and audience insights available to Netflix presents a unique competitive advantage to continue to develop innovative discovery tools that help connect consumers to the content they may not know they will love. The opportunity for Netflix and others is to go beyond their own data to build far more comprehensive insights into what consumers watch on all channels and platforms, to then build smarter discovery tools to keep users engaged in their services.
According to Reelgood and Learndipity Data Insights, Netflix users were spending on average 18 minutes a day looking for content only a few years ago. That is a lifetime in today’s competitive market where consumers will simply switch to another platform. Closing this loop and investing more heavily into cross-screen insights into what consumers want to watch, not just on Netflix but across their entire content journey, will go a long way to keep subscribers.
Consider this one example: Netflix knows what an “Ozark” viewer is likely to watch on Netflix and will try to redirect those audiences to similar shows. But what if Netflix’s algorithm also knew that “Ozark” viewers are three times more likely to watch “The Gilded Age” on HBO Max than the average U.S. adult? By combining the viewership data from across platforms and screens, discovery tools become far smarter and more user friendly and in this case Netflix would know to recommend to that “Ozark” viewer that they check out “Bridgerton” before they cycle off to another service.
All told, in the drive to survive in OTT, Netflix is in the pole position to shape the future of entertainment. If Sarandos and Peters can truly nail customer retention, they can focus on other key areas that will define streaming, such as sharpening their ad-supported strategy and finding new, innovative approaches to extend the lifetime value of their content portfolio. For those components to work, though, they need to ensure they can stop subscription cycling as quickly as possible.
Ashwin Navin is the Co-founder and Chief Executive Officer at Samba TV, a global provider in television technology and omniscreen advertising and analytics. Navin launched Samba TV at CES in 2009 with a product demo that illustrated how an internet-connected TV could be seamlessly integrated into digital lifestyle. Thirteen years later, the company has surpassed over $100 million in advertising revenue, expanded to top international markets all over the globe, and has partnered with some of the world’s most influential companies like Disney and Twitter.
Navin brings over 20 years of co-founder and chief executive leadership to his role at Samba TV, with deep expertise in starting and scaling successful businesses in the media technology space. A serial entrepreneur, Navin also co-founded BitTorrent, Inc., which revolutionized open-source protocol into a technology platform for P2P content distribution.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce Video staff. They do not represent the opinions of Fierce Video.