Netflix: Stranger Things success proves ‘effectiveness’ of marketing strategy

Netflix has reported a loss of 1 million subscribers between April and the end of June this year, the second quarter in a row the streaming giant has seen subscribers drop.

However, this figure is significantly better than the loss of 2 million subscribers projected last quarter. Speaking to investors yesterday evening (19 July), co-CEO Reed Hasting attributed the better than expected result to the success of the Stranger Things series and improvements to Netflix’s marketing strategy.

“We’re improving everything we do around marketing, improving the service [and] the merchandising, and all of that slowly pays off,” he said. “If there was a single thing, we might say Stranger Things.”

Co-CEO Ted Sarandos said new CMO Marian Lee had carried out Netflix’s “best campaign to date” with the marketing for the series. Indeed, in a letter to shareholders the company said the fourth season of Stranger Things “showcased the effectiveness of our marketing strategy in driving conversation around our titles” and building “passion” for the Netflix brand.

We’re improving everything we do around marketing, improving the service [and] the merchandising, and all of that slowly pays off.

Reed Hasting, Netflix

Moving forward, Netflix is focusing its marketing spend on titles which will create excitement and conversation, Sarandos added, such as the platform’s most expensive film to date The Gray Man, which launches later this week. The streaming service spent just under £575m on marketing in the second quarter, £19m more than in Q1.

“The Gray Man is certainly one of those movies that’s going to attract a very broad audience, so you’ll see the marketing spend out there pretty aggressively,” said Sarandos.

Netflix’s total revenue for the first quarter of 2022 was $7.97bn (£6.6bn), missing analysts’ expectations of $8.04bn (£6.7bn). Shares have fallen around 67% this year.

The streaming service has blamed its slowdown on headwinds including password sharing, competition and a troubled economic backdrop, promising to “better monetise [its] big audience”.

Maintaining value amid price hikes

As part of this plan, the price of a Netflix subscription increased in May. In the UK, both basic and standard subscription plans went up by £1 per month to £6.99 and £10.99, while a premium subscription increased by £2 to £15.99.

According to chief product and operating officer Greg Peters, customer response to these price hikes across the US, UK and Ireland have been “standard”, with a slightly higher churn “adjustment period” following the change. However, in the US churn has already returned to pre-price change levels.Netflix eyes ad potential as subscribers fall

“If we do a good job at taking those price changes, which are significantly net revenue positive, and investing those into more great content, the product experiences, marketing, and magnifying the conversation around our titles, then we know that we’ll deliver more entertainment value when we’ll be able to return those metrics,” Peters explained.

Adding that Netflix wants to ensure it remains “great” value for its content, particularly as consumers battle with the rising cost of living, Peters claimed plans to introduce an ad-supported subscription tier will increase the accessibility of the service, “especially in the years to come”.

He also believes Netflix can deliver an advertising experience which is “fundamentally different” to that on linear TV, in a way that supports both advertisers and viewers.

“We think there’s a tremendous opportunity to leverage that innovation DNA we have, as well as a bunch of enabling characteristics around addressability, measurability and things like that, to [both] provide an incredible experience for consumers who choose to take the ad-supported offering, but also provide an incredible experience for brands and advertisers who want to work with us,” he said.

According to Peters, Netflix has seen “a lot of excitement” in early discussions with brands and agencies.

Meanwhile, the service is increasingly cracking down on password sharing between users in different homes. Yesterday, Netflix announced it would trial charging subscribers in five countries in central and South America an extra $2.99 (£2.50) per month to add a “second home” to their accounts.

Resilience during inflation

According to UK streaming market data released by Kantar earlier this week, 500,000 streamers cancelled a subscription to cope with the cost of living crisis between April and June this year.

The proportion of consumers planning to cancel video streaming subscriptions due to ‘wanting to save money’ has slightly dipped from an all-time high in the first quarter of 38% to 36%, but remains significantly higher than a year ago (24%).

However, Netflix’s group CFO Spence Neumann said past economic cycles in the US have shown forms of entertainment to be “fairly resilient” to downturns, so the business remains confident in its ability to weather the inflation storm.

“There’s a level of escapism that entertainment provides,” he said. “If you look at the pay TV business over economic cycles, it tends to be a bit more resilient as well, because the value of in-home entertainment increases as folks perhaps don’t go out as much.”

Neumann said subscription businesses also tend to be a “bit stickier”, but noted that every recession and economic cycle is different.

“We don’t want to take that for granted and we’re monitoring it pretty closely,” he added.