Due to pandemic-related supply chain issues and high inflation, the stock market has been in bear territory for some time now, pulling down share prices across a range of industries. The world of subscription video-on-demand (SVOD) has experienced notable suppression over the last couple of years, with Warner Bros. Discovery, Walt Disney, and Netflix (NFLX -0.35%) all trading far below their mid-2021 levels.
However, some experts believe a bull market could be on the way, and many are projecting an uplift in the coming months. So with this in mind, SVOD market leader Netflix could well be primed to take advantage of the rise.
Turning viewers into customers
Netflix surprised stakeholders with its fiscal 2022 first-quarter results that showed a loss of subscribers for the first time in more than a decade. Investors responded abruptly, sending the stock price tumbling by 35%. At the time, the streamer announced a handful of measures aimed at sparking new growth, including a crackdown on password-sharing and an ad-supported tier.
Netflix closed fiscal 2022 with more than 230 million global customers, reaffirming its position as the world's biggest stand-alone streaming service. Nonetheless, the company thinks it has more to add, and it believes it can do that by converting some of the approximately 100 million people who use other people's passwords to watch its content.
Speaking during the company's 2023 first-quarter earnings interview, co-CEO Greg Peters explained that the streamer has seen some cancellation activity in markets where it has introduced charges for account-sharing. But he said it has seen a rise in sign-ups in those territories, as well as many customers opting to pay extra to share their log-in details.
The ad-supported plan is starting to show results
Netflix rolled out its $6.99 a month Basic with Ads tier in November of 2022. Initial reports suggested it had been met with tepid demand, with the company having to reimburse marketers because it had missed viewership goals. But with the streamer's latest results now in, it seems the offer is starting to show results for Netflix.
In its first-quarter shareholder letter, Netflix said its ad-supported tier had demonstrated "healthy performance" and that it is planning to add more streams and improved video quality, all in the hopes it will be able to "attract a broader range of consumers."
Gaming out the future
Netflix got into the video game space in November of 2021, launching a batch of iOS and Android games exclusively for its subscribers. In the period since, the streamer has said it plans to move into the cloud gaming space, suggesting that it eventually hopes to offer titles across multiple smart devices.
Netflix made clear in its first-quarter message that investing in games is one of its major priorities. And considering the size of the industry, it's easy to see why the company is focusing on it. According to Fortune Business Insights, the global video game market was valued at just over $203 billion in 2020. By 2028, that figure is expected to reach almost $546 billion.
Despite these positives, some investors might have doubts about the company's ability to turn those 100 million nonpaying viewers into actual customers. Indeed, Insider Intelligence recently projected Netflix will see a 0.5% drop in viewership this year because of its plan to clamp down on account-sharing. Nonetheless, the company seems to think it has the right strategies to fend off any long-term damage.
Netflix has said it will introduce password-sharing fees in the U.S. at some point during the current quarter. Stakeholders would do well to watch the response, and indeed, whether the mitigation strategies are enough to stem significant subscriber losses.
