Companies Tech

If you thought Netflix was richer thanks to a pandemic, you’re wrong

Netflix’s business model seems to benefit from Covid-19. However, this company needs to change its business model if it wants to survive in this time.
Drama production is stalling. Major sporting events have also been postponed or canceled. Parks, movie theaters and amusement parks are closed in turn to limit the spread of epidemics.

That makes Internet entertainment services such as Netflix, Spotify … expected to grow strongly. Spending more time at home means Netflix has more users.

Short-term prosperity

In February, the time of the outbreak corona, Netflix shares rose from 345 USD to 348 USD / shares by investors expect the platform will live well despite disease.

“If the disease spreads in moderation, there will be more people looking for home entertainment options like Netflix, HBO, Disney …”, Moody Investors Services analyst told the New York Times.

However, that only happens when the disease is “moderately”. From the end of February until now, Netflix stock price has been affected by the market. As of March 17, Netflix shares were only $ 289.8 per share.

In a new study, Laura Martin, an analyst from Needham pointed out the points that Netflix would also be hurt if the epidemic persisted. Accordingly, this analyst said that Netflix will be affected indirectly.

When user income is down due to the epidemic, signing up for a Netflix account every month is a luxury. Evidence for this, Laura Martin cited European Commission data on tourism accounted for 10% of GDP in France, 13% in Italy and 15% in Spain.

In the case of the three countries on the tourist blockade, millions of people working in the industry will not be paid. Since then, signing up for new Netflix is ​​a luxury. “They may have to cancel their existing Netflix subscription to save money,” said analyst Martin.

Business model is difficult to accelerate

Besides, Netflix is ​​a business model that makes money from a fixed subscription each month. This means that Netflix’s revenue does not increase with the number of watch hours.

No matter how long the translation is, every month Netflix also earns that much subscription fee of the user. This is the downside of Netflix when compared to the model of making money from advertising like Facebook or Google.

Analysts at Needham said streaming companies like Netflix are expecting an increase in subscribers and revenue from non-US markets this year. However, regions such as Europe and Asia are among the worst affected by the pandemic.

Before COVID-19, analysts at Needham estimated that Netflix would spend US $ 17-18 billion on content production in 2020. However, TV production activities in Europe and the US are all being affected. delay.

This gave Netflix a “bifurcate”. In a short time, the delay of production made the amount of 18 billion USD invested in content become a dead capital flow, greatly affecting investor sentiment.

In the long run, the delay in producing new content may lead to a shortage of things to watch on this streaming platform.

Any solution for Netflix

Netflix subscribers have a high price of 9-16 USD per month in the US. Therefore, experts Martin, Netflix should consider giving more options to watch ads with free or cheap users ( 5-7 USD ). This strategy both helps Netflix earn more revenue from advertising while increasing the company’s competitive advantage before emerging competitors such as Disney +, Apple + …

To avoid impacting the user experience, Netflix might consider inserting 6-8 minutes of advertising every hour for cheap or free accounts.

Analysts at Needham once predicted that Netflix would lose 4 million users by 2020 against the competition of more affordable emerging streaming services. Therefore, adding advertising business options will help the company reach low-income users.

According to Statista , by the end of 2019, Netflix had 61 million users in the US. This is equivalent to 75% of US households using this streaming service. In the context of the epidemic, the number of new subscribers may not increase. So, finding ways to make money from existing customers is something Netflix should consider.

Besides, the disease is also a good opportunity that Netflix needs to seize. Stephan Paternot, co-founder and CEO of the online movie financial market Slated told the New York Times that this is an opportunity for Netflix to launch free real-life packages in many countries. It makes it possible for users to experience Netflix’s service while having plenty of season time.

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