Netflix’s decision to raise prices for UK customers by up to 20%, following a similar move in the US, is the latest sign of the mounting financial pressure the streaming giant is facing to keep its balance sheet in shape as it prepares for the arrival of deep-pocketed rival Disney’s eagerly anticipated service later this year.
The company’s breakneck pursuit of global streaming domination means putting growth before profits, and the cost of amassing 150 million subscribers – 10 million of those in the UK – is mounting. Netflix’s annual programme budget stands at $15bn (£12bn) and the company has amassed a total of $42bn in debt and longer-term payments relating to content.
The arrival of streaming rival Disney+ later this year will add significant pressure. At launch in the US, it will be half the price of Netflix, backed by hugely attractive content including Marvel’s superhero films, the Star Wars saga, Pixar creations ranging from Toy Story to The Incredibles, as well as The Simpsons and hit Disney films such as Frozen.
Disney is already pulling its content from Netflix and the price demanded by those still willing to license content is soaring. WarnerMedia’s Friends is Netflix’s most popular show and it has had to triple its payment to $100m to hold on to it for just one more year.
Netflix’s strategy of increasing prices – the last rises in the US and UK came in 2017 – has so far had no impact on customer loyalty and the growth rate of new subscribers. However, as the next stage of Netflix’s growth is set to come from vast markets, such as India, with lower average incomes, its pricing will have to be very low to be competitive.
Given Netflix’s global scale, the company could consider the careful introduction of advertising in some markets. Founder Reed Hastings has always been against the idea, but last year Netflix tested ads, or rather trailers for films and shows, in the countdown gaps between episodes when viewers were binge-watching. Sir Martin Sorrell, the former head of the world’s biggest marketing group, WPP, has said Netflix would have to consider advertising “as an alternative revenue generation opportunity”.
Netflix’s booming popularity will see it become the equivalent of the third most-watched TV channel in the UK this year, behind only BBC1 and ITV – making it a hugely attractive proposition for advertisers.
Any advertising strategy would need to be handled carefully, as full TV-style ad breaks could result in a customer exodus. Analysts at Ampere estimate that if introducing ads resulted in 5% more customers leaving, it would make the strategy uneconomical.
However, the introduction of advertising has been shown to work. US streaming service Hulu, which airs shows such as The Handmaid’s Tale and is now controlled by Disney, has said that almost three-quarters of its 28 million customers are on a $5.99-a-month plan that includes exposure to advertising. Ampere believes Hulu actually makes more money per subscriber from that subscription-plus-ads combination than it does from its $11.99 ad-free option.
Despite surveys of Netflix customers suggesting they are set against ads, the Hulu experience seems to indicate that stated intentions do not match real-life actions. In the first quarter this year, Hulu added twice as many subscribers as Netflix in the US.
Netflix is not yet at a point where ad revenue is crucial to its viability, and with a $150bn market valuation, the world’s biggest streaming service appears to be retaining the faith of its investors. But having upended the traditional TV viewing model, it may yet do the same to the television advertising market.
What business fears most is a Tory meltdown
Business leaders are anxious about the fate of the Tory party. That was clear last week when the head of the CBI, Carolyn Fairbairn, urged Conservative party members to vote for candidates that are ruling out a no-deal Brexit.
Fairbairn didn’t say this directly. She was careful to make clear that business lobby groups, including her own, never comment on party politics and especially the internal working of an individual party.
But her comments were not just a repetition of the business mantra that leaving the EU without a deal would hit employment, profits and growth. It also appeared to be an expression of bosses’ deep-seated fear that a no-deal Brexit would ruin the Tory party’s election prospects and usher in a Labour administration with Jeremy Corbyn as leader.
Business is becoming increasingly concerned that grassroots Tories have developed a reckless streak. A poll putting the Liberal Democrats at 24%, ahead of Labour and the Tories tied at 19%, confirms that the Tories’ EU election fiasco, when the party of low taxes and business-friendly regulation came fifth with 9.1% of the vote, could be repeated.
Without the Tories at the helm, business would be faced with the prospect of a higher minimum wage, greater environmental controls and improved workers’ rights. There would be moves to nationalise the utilities and the railways, while taxes on the better-off would rise.
For some in the Labour leadership, nudging the Tories towards a no-deal Brexit indirectly offers the chance of the ultimate prize: a Labour government.
But that would be a disastrous price to pay. Labour needs to win on its own terms. Corbyn should put an end to this high-stakes, no-deal game and back a second referendum. Only then can the parties really pitch their policies against each other for the electorate to choose.
Even if the Blues are in Baku, aviation must go green
The real cost of air travel is rarely felt by those who use it: while motorists’ petrol is taxed, jet fuel has escaped it, due to the complexities of international enforcement.
But whatever the environmental lunacy of staging two European football finals between English teams in Spain and Azerbaijan, the fans who paid thousands to fly out were at least desperate to travel. More often, cheap fares lure consumers into journeys they might not have contemplated: according to Ryanair, its average fare now is just £33, lower even than in 2004.
Meanwhile, extreme wealth inequality has created a booming market in even more carbon-costly private jets, whose growing ranks helped make last week the busiest ever for flights in and out of British airspace.
Alarm over climate change can be seen in the committed no-flyers, and Extinction Rebellion plans to shut down Heathrow with drones later this month. Yet the sentiment remains comparatively niche: remarkably, a social attitudes study just published by the government shows that an ever-increasing proportion of British adults believe flying should be untrammelled, regardless of the environment.
Nonetheless, as 1,000 executives gather at the International Air Transport Association’s annual meeting in Seoul this weekend, sustainability is creeping ever higher up the agenda. Airlines have agreed, in principle, the Corsia offsetting scheme, a financial incentive to curb the overall growth in emissions. It is a plan that may get aviation off the hook in terms of climate commitments, but won’t stop the spew from jet engines, any more than tobacco firms funding cancer research will clean up smokers’ lungs.
Offsetting cannot be the only answer – and in future the industry is liable to be held more accountable. The more far-sighted are pursuing projects for electric planes or greener fuels, however unviable many currently appear. Aviation must, somehow, clean up its act.
