More ways for SVOD provider Netflix to make money after Covid

As the country pulls out of the lockdowns of the Covid pandemic, many people are returning to sports, travel, events and other activities that were limited in the past 16 months. But that doesn’t mean all the increases in gaming, watching videos, and other home activities will go away. My research shows that consumers will easily return to movie theaters, and many will retain much of their increased level of watching videos and consuming other home entertainment activities.

SVOD (subscription VOD) services have often been seen as big winners throughout the Covid pandemic, but even these content behemoths are starting to see their growth slow and recent price increases have not gone unnoticed by of the consumer.

What will Netflix (and others) do to keep their income growing at a dramatic rate (which their stock prices seem to demand). They have a lot of things they can consider doing:

  1. Higher prices
  2. Limit password sharing
  3. Add free ad-supported content or even create a branded ad-supported video on demand (AVOD) service.
  4. Add sports content and charge extra for sports content
  5. Add games that would generate advertising, in-app purchases, or additional game content fees.

Wall Street analyst Michael Nathanson of MoffettNathanson Research recently pointed out the dramatic slower growth in Netflix subscriptions suggests that Netflix may need to consider adding revenue from advertising and sports companies. I

think there are other areas that Netflix could consider as well – such as games, as well as maybe a ‘creator’ platform down the road, more that YouTube and TikTok offer creators, influencers and to the ordinary person.

Nathanson, and I share his interest, is particularly focused on the opportunities for Netflix (and presumably other SVOD services) to generate new revenue through advertising. “While Netflix’s management continues to strongly reject the idea of ​​advertising, we believe this view will be viewed as a strategic error if future subscriber growth rates start to fall short of Street’s expectations,” he said. he declared.

I have seen in my own consumer research a wide range of reactions to advertising and content – some people say they don’t want the ad and are willing to pay, others say they will never pay. for content and they’re okay with watching ads, and of course a lot of people fall in the middle. A recent Hub Entertainment Research study confirmed that there is a real opportunity to advertise content that is usually or had been ad-free before. Also, keep in mind that a few of the VOD services have had hybrid arrangements where you pay for the plan, but some content still has ads. Most notably, Hulu has had this model for many years.

Other notable executives in the media industry share Nathanson’s view. Doug Morgan, a longtime digital technology entrepreneur in the advertising space, said in an email exchange with me: “There is no doubt that Netflix will continue to dominate video on demand. subscription, but if it doesn’t create its own ad-supported streaming soon. service, you will have to buy one in three or four years. Netflix needs revenue streams to compete with the adjacent market subsidy power of players like Amazon and Apple because they don’t need to make money selling video subscriptions.

Nathanson projects a revenue CAGR for Netflix in the coming years at 14% and asks, “Is a revenue CAGR of 14% over 2021-2025 enough to justify the valuation of Netflix’s premium equity?” Compared to other internet names, Netflix stands out with lower expected revenue growth than its peers despite a relatively high valuation.

Netflix has increased its prices and changed its terms of service for multi-person families (limiting password sharing to some extent) in the past, including recent changes, and no doubt Netflix will continue to explore theirs. options to generate more income through price increases. . I imagine future price increases will be modest and lead some customers to ditch Netflix. Price increases are unlikely to bring Netflix back to high revenue growth figures.

Adding advertising to part of the content, or some other level of content, makes sense to me. The elements that make an SVOD service successful are largely the same elements that make an AVOD service successful: lots of quality content, available on multiple devices, with fast, easy-to-use technology. Netflix is ​​a notorious user of analytics for business decisions and they can easily test and evaluate this approach. Maybe they already are?

As Nathanson also suggests, sports content is an opportunity for Netflix to generate more revenue. Netflix could try to find content to acquire like European Football, which NBC successfully added to its lineup several years ago, at a reasonable price. If Netflix is ​​to grab near-exclusive deals for NFL, MLB, or NBA games, the price tag is going to hit them hard in EBITDA. A great sports game by Netflix would be a I salute you marie, but I expect Netflix to only do that if they see some great receivers opening up in the field.

Other new revenue ideas could cover games as well as a platform for creator content (formerly known as user-generated content).

In games, Netflix could develop games focused on their IP and launch new IPs just like they did in video. Such games could be attractive to many consumers across the various mobile, web, PC and console platforms, not to mention ConnectedTV (an emerging platform for games as well). Netflix could offer a game subscription for additional revenue, or it could monetize its games through ads and in-app purchases, which would not be in line with Netflix’s pass monetization practices. Or Netflix could stimulate the creation of new IP games that are compelling enough to entice new customers to sign up for the Netflix video plan just to get the games. Amazon has tried an Amazon Prime video program around games and gaming content (Twitch) with unknown success.

Even further is the idea of ​​Netflix creating a platform, with authoring tools, for their customers to create creative content – videos, audio, games, interactive storytelling, etc. Creator content will be widely distributed through Netflix’s consumer audience, in immediate competition with YouTube, and that creator content may become another reason for people to join Netflix and stay with Netflix.

Likewise, perhaps other competitors in the VOD space will branch out into games, designer content, and smart TV-focused content. Seems like the streaming businessmen have a lot to do to increase their income and profitability.

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