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  • GLOBAL BUSINESS

Streaming in a Sharing Economy

Updated: Nov 11, 2022

Netflix toys with the idea of including advertising on their platform.


RAYMOND B. KANIU



Netflix shares dropped by 35.12% at the closing bell today, bringing the YTD and 1YR to -62.14% and -55.55%, respectively.


Netflix lost 200,000 million subscribers in the first quarter, the first time in over 10 years, but retained a high household penetration of 222 million paying households. A significant drop in market share in the last two years from increasing competition: Disney, Warner Bros. Discovery, Paramount Global, NBCUniversal, and Apple TV+ has forced the company to crackdown on password sharing estimated at 30 million in the US and Canada, 100 million globally. Their other plan, as highlighted in the shareholder report released yesterday, is the proposal of lower-priced, ad-supported plans.


The advertisements would bring a new stream (pun-intended) of revenue and that revenue will allow Netflix to offer a cheaper option for subscription to those who are borrowing passwords, but that's assuming that Netflix has a fixed cost/expense per stream. If it is not a fixed cost to Netflix, all the money earned from ads, and its ad-supported subscription service subscribers will be to their benefit. The cheaper option to stream with ads is for those who borrowed passwords, assuming the reason they were borrowing passwords is because of higher prices, and the fact that subscribers can share, thus no cost to those who borrow.

From Netflix's perspective, sharing is a dilating dent in their bottom line.”

From Netflix's perspective, sharing is a dilating dent in their bottom line. According to Park Associates, sharing or stealing streaming service passwords cost an estimated $2.5 billion in revenue in 2019 and will rise to approximately $3.5 billion by 2024. A massive loss considering the time when that research was conducted and the emergence of new players in the streaming services thereafter. It would also change the way we view Netflix because it is associated with, and almost synonymous with, ad free streaming. The pressure to respond has never been higher with analysts claiming that Netflix is a broken story, but they will evolve because they are a platform for creators and people still need to be entertained, lest they become who they upended - Blockbuster.

The other option could be to create a new streaming service in a rebranding effort to reclaim the revenue lost through sharing and play on both sides of the market - ad-supported and ad-free. It is a realistic option given the fact that Netflix has rebranded a service in the past, their DVD business to DVD.com. A good example of a streaming service provider and competitor using this strategy is Amazon.


A week ago, Amazon claimed that it will be rebranding to its free-to-stream, ad-supported service from IMDb TV to Amazon Freevee. The service, however, was launched separately in 2019 as IMDb Freedive. Prudent from Amazon to try it out for three years and activate it at a time when it is needed by rebranding it to reflect its Amazon affiliation. Netflix can do the same by creating a new company to accommodate the ad-supported streaming as opposed to what Hulu has, for example, by offering options in the subscription services based on ad-free and ad-supported content under the same umbrella. Ad-supported video-on-demand has seen a rise during the pandemic as the sharing economy took its natural course.


The sharing economy, when streaming was at its peak, was due to the lockdown measures during the pandemic. The sharing economy presently and in the immediate future, is and will be due to low wages, increasing debt and inflation, and more streaming options/services from competitors. The other side of the sharing economy in streaming allows subscribers in a household to acquire different subscription services. Each household member or each friend in a group can get a different streaming service. The family members or friends can then share their respective passwords with each other. Two in five online adults share their streaming passwords with friends or family, and 56% of online adults aged 18-29 share passwords (Pew Center for Internet and Technology).


Two in five online adults share their streaming passwords with friends or family, and 56% of online adults aged 18-29 share passwords.”

However, in the short-term, for Netflix to execute both of the proposed options simultaneously would be to add injury to their bottom line and insult to its subscribers and shareholders. As for the long-term, we will wait and see, maybe with a few ads sprinkled here and there.


Netflix shares dropped by 35.12% at the closing bell today, bringing the YTD and 1YR to -62.14% and -55.55%, respectively.


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