• In early March, Netflix faced strong headwinds for missing its targets for new U.S. subscribers. They also announced layoffs and were confronted by several new major competitors. What the venerable streaming service needed, Needham & Company Senior Analyst Laura Martin told RampUp at the time, was a new strategy to win an attribution war of subscribers against well-heeled and brand-rich competing services such as Disney+, Apple TV+, and NBCUniversal’s Peacock. 

    Then the COVID-19 global pandemic happened. 

    Subscriptions, viewership, and TV sales are all up

    “More subscriptions is not Netflix’s problem today,” Martin said. “Now, the issue is whether they can retain those extra subscribers.”

    The pandemic has acted as “a cinderblock on the gas pedal” of streaming services, Gartner Senior Director Analyst Eric Schmitt added. He pointed out that Netflix posted 10.1 million new subscriptions in Q2 as the pandemic grew, compared to its projected goal of 8.26 million. The use of streaming services is also higher overall: Nielsen’s 2020 Audience Report in February and August showed that the percentage of TV viewing on streaming services went from 19% in Q4 2019 to 25% in Q2 2020.

    TV sales have been “through the roof,” Martin pointed out. Generally, she said, they go up or down a few points each year, but they have seen double-digit increases in sales, year-over-year, since the pandemic hit.

    “The pandemic accelerated subscriber growth among all streaming services,” Martin said, “but Netflix was the primary beneficiary.” She cites the brand’s visibility, its ease of use, and the fact that it already had the largest installed base as reasons why Netflix continues to dominate its space. 

    “Post-pandemic,” she added, “all the streaming services will lose viewership.” The trick, of course, is to be the service that loses the fewest.

    The absence of new content somewhat levels the playing field

    New content would normally be one of the key ways Netflix could stem its post-pandemic subscriber erosion, but even though production is now slowly ramping up again, there is likely to be a dry spell until the pipeline fills up.  

    The good news, Martin pointed out, is that the other streaming services face a similar drought of new production. The bad news: the biggest competitors like Disney, NBCUniversal’s Peacock, and CBS All Access have huge libraries, including rare and previously unseen content.

    According to Schmitt, Netflix has some of its own advantages to keep its subscriber base up, citing its famed recommendation engine on what to watch next, which draws on user data going back to the service’s founding more than two decades ago. The richness of that data, unmatched by others, also allows it to target content development, marketing, or new features toward the preferences of individual users or specific groups.

    In part, Schmitt says, that rich database is made possible because of the “superior user experience” Netflix offers by eschewing ads. This gives Netflix an advantage over ad-supported streaming services like Crackle, or services with ad-supported lower-level subscriptions, like Hulu. Additionally, Schmitt said, no ads means cleaner data that is not clouded by viewer breaks during commercials.

    Newest possibility: Netflix theaters

    An even more radical differentiator may yet be on the horizon—going out to watch programs from the streaming services. Last month, a federal District Court judge ruled that the Paramount Consent Decrees, which prohibited movie studios from owning theaters, were no longer relevant in an age when there are so many outlets for programs. 

    With movie theaters on the ropes because of the catastrophic attendance fall-off during the pandemic, a purchase of a movie chain or two might become a key differentiator to help Amazon, Disney, Netflix, or any streaming service with a studio heighten the visibility of their new releases. 

    Imagine Netflix subscribers uploading video testimonials from their phones after seeing a new movie in a theater, which are then used to promote the follow-up when it is released for streaming at home, or are added to in-theater previews for that movie. The same could work for series’ as well: the first few episodes could be made available only by viewing in a theater, and people who go see them get early access to the whole season to stream at home. 

    People are always looking for new ways to do the things they love—or frankly, still can do safely—and these are just two possible scenarios. 

    When it eventually ends, the pandemic will leave permanent ripples across modern society. More remote-only offices, a shift toward telehealth, and more distance learning are among the increasingly likely ramifications. As for the ongoing story of how the pandemic changed streaming services—stay tuned.

    Want to learn more about what’s hot in the advanced TV industry? Check out our TV agenda for the RampUp: Worldwide Virtual Summit, happening September 28-October 1, 2020, and register to attend. It’s free!

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