Why is Netflix’s Market Share in a Consistent Decline?

Netflix, the goliath among streaming platforms seems to be in deep trouble as smaller players saturate the VOD marketplace. Once considered feeble players, Paramount Plus and Peacock TV are on the rise in the US market with hit shows like Yellowstone and Pokerface.

The plunge in Netflix’s market share was first observed in April 2022 when it announced the loss of 200,000 subscribers with a forecast of 2 million more ending their subscriptions. Soon after that, the stock market observed a 35% drop in Netflix’s market value.

To curb that, the streaming giant introduced multiple cheaper offers to target every social group, especially in South Asia, where numerous users are utilizing a single account via password sharing. A crackdown on the users who were sharing passwords observed a surge in new subscriptions as well.

According to The Guardian, this drop in market value caused a loss of $50 billion to Netflix. However, there is more than one reason for this drop. The surge of users who flocked the streaming platforms during the COVID-19 pandemic started to rethink their loyalties to the platform after the ban was lifted.

What is Happening to Netflix in 2023?

Come 2023, those Davids who were feeble in 2022 finally took down the Goliath of the streaming industry. That’s right, Paramount+ and Peacock TV observed the highest growth in Q1 of 2023. As a result, Netflix continued to drop.

The Precipitous Drop in Market Value

As Bloomberg reports, Netflix’s market share in the US took a nosedive in Q1 2023, down a whopping 5.56% from the previous year. It’s like watching a once-mighty castle crumble, one brick at a time. On the other hand, the most significant disruptor in the streaming space has been Peacock TV, which experienced a staggering 43.85% growth in market share, skyrocketing from 5.62% in Q1 2022 to 8.08% in Q1 2023.

Moving forward, let me tell you about the quarterly visits decline. Netflix, Hulu, and Disney+, the industry stalwarts, all saw a decline in quarterly visits from Q1 2022 to Q1 2023. Netflix’s drop was the most notable, plummeting by a troubling -29.8%. In stark contrast, Peacock TV and Paramount Plus bucked the trend, experiencing growth in quarterly visits during the same period.

Another key indicator is the year-over-year decline in Netflix’s growth. The streaming industry, on average, experienced a monthly traffic decline of -20.2% year-over-year in Q1 2023. This consistent negative trend indicates significant challenges in a post-pandemic world. It’s a sad saga for Netflix as its US market share dwindles even further, reaching 44.21%, down a staggering 6% year-over-year. Netflix, we hate to break it to you, but your throne is wobbly.

Changing User Behavior

Remember the golden days of peak lockdowns when streaming was the ultimate pastime? Fast forward to today, and it’s clear that viewer behavior has evolved significantly. As the users rethink their loyalties, the streaming platforms hang in balance and financial woes hit these VOD giants.

One primary reason for this is the saturation of the streaming market and content conundrum. With newer platforms that focus on genre-specific content, people are turning toward what they prefer to watch rather than what the streaming platforms provide. Moreover, the rise of HBO Max, Peacock TV, and Paramount+ has provided viewers with exciting alternatives to Netflix. With YouTube TV and Paramount+ showing remarkable growth, it’s clear that the allure of exclusive content is a potent force in reshaping viewer preferences.

Let’s face it, subscribing to multiple streaming services can be as exhausting as keeping up with a never-ending series. Viewers might be questioning whether they truly need a subscription to every platform, given the growing costs and content overlap. Perhaps they’re realizing that less is more when it comes to streaming services.

Netflix’s Trajectory: Stock Performance and Investor Sentiment

Just a year ago, in November 2021, Netflix’s stock was riding high at a staggering $700 per share. It was the streaming kingpin, and investors couldn’t get enough of it. Fast forward to now, and the story is strikingly different. Last week, the market opened with Netflix’s stock trading at a mere $244. That’s a fall of nearly two-thirds in less than two years.

The past year has been a tumultuous one for Netflix’s stock. It started the year with a 40% drop, setting the stage for the challenges that lay ahead. The decline continued, and as mentioned before, it culminated in a sharp drop that wiped a staggering $50 billion off Netflix’s market value. Investors who once saw Netflix as an unstoppable force are now facing a sobering reality.

So, how does this market performance affect the Investors?

  • Investors who once had unwavering confidence in Netflix are starting to doubt whether the company can maintain its dominance. The decline in Netflix’s market share and the influx of competitors have left some questioning whether the streaming giant’s best days are behind it.
  • Investors are aware that the streaming space is no longer a one-horse race, and Netflix faces fierce competition with more genre-specific platforms attracting the user base.
  • streaming industry’s average monthly traffic decline of -20.2% year-over-year in the first quarter of 2023 is indicative of market uncertainty. Investors are witnessing a shifting landscape and are uncertain about how the industry will evolve in a post-pandemic world.
  • While Netflix remains the largest player, its inability to reverse this bullish trend has rattled investor confidence.
Why is Netflix's Market Share in a Consistent Decline?

The Road Ahead

Netflix’s historical strength has been its original content, from blockbuster series to critically acclaimed films. To regain lost ground, Netflix must continue investing in compelling, exclusive content that captures global audiences. The data indicates that content is still king in the streaming world, and Netflix needs to maintain its throne.

Strategies for Recovery

A good focus on localized content could help Netflix’s market share in the long run. The one thing that benefited this streaming platform was its global presence and to curb the challenges it is currently facing in the US market, it could gain an advantage by attracting a huge chunk of international viewership.

Moreover, with the rise of ad-supported tiers and price-conscious consumers, Netflix’s decision to offer lower-priced options is a step in the right direction. It should further fine-tune pricing strategies to cater to different segments of its user base without compromising on content quality.

One strategy that always seems to work is to enhance user experience with better algorithms. Targeting the user intent has always been a key parameter. Furthermore, collaborations with major studios and content creators can provide Netflix with exclusive content and unique offerings, ensuring it remains at the forefront of the industry.

Lastly, cross-platform content sharing could be a suitable option. That’s right, in times of financial lows, you have to try everything. There are already some HBO shows that are on Netflix, this could bring in more viewers globally since Max is region-bound to the US. Let’s pretend that the first 3 seasons of Game of Thrones become available on Netflix.

People will rush towards the platform as this is a globally recognized TV show. We have already seen it in the case of Suits where a surge in watch hours was observed in July. Even though the show is old, there is still a massive fanbase that would still enjoy streaming it on the weekends. But, how will this benefit HBO? Simple, run the first 3 seasons on Netflix and the remaining seasons on Max. This could facilitate a smooth transition of audience and benefit both streaming platforms.

Forecasting Netflix’s Future

Forbes notes that during the 2007-08 financial crisis, Netflix displayed resilience. Its stock defied the market sell-off, rising approximately 70% from October 2007 to March 2009. It continued to climb further, up roughly 52% between March 2009 and January 2010, while the S&P 500 saw a 51% decline during the crisis.

Not only that but Netflix’s fundamentals have always been strong, with revenues doubling from $15.8 billion in 2018 to approximately $31.60 billion in 2022. Net income also saw a significant increase, rising from about $1.2 billion in 2018 to approximately $4.5 billion in 2022. This growth can be attributed to its expanding subscriber base and international expansion.

While the road ahead may seem challenging, there’s potential for Netflix to stage a remarkable comeback.

Netflix’s stock currently trades at $397 per share, a significant drop from its pre-inflation shock high of approximately $692 in November 2021. If it manages to recover to these levels, it could offer considerable gains for investors. The company has already shown resilience, gaining about 137% from its mid-2022 low of around $167, outperforming the S&P 500 during the same period.

Moving forward, Netflix’s historical Sharpe Ratio of 0.6, comparable to the S&P 500’s, suggests that it can provide a balance of returns and risk. High-performance portfolios often offer the best of both worlds.

Presently estimated at around $377 per share, Netflix’s valuation is slightly below the current market price. While the recent financial sector uncertainty has raised concerns about a potential recession, Netflix’s business may still thrive if it adapts to changing economic conditions.

Final Say

In the ever-evolving drama of the streaming world, Netflix finds itself at a crossroads. Its once-unassailable market share has waned, and its stock has faced turbulence. Yet, in the face of challenges, opportunities emerge.

That’s right, with strong a commitment to innovation, content excellence, and global appeal, Netflix has the potential to pen down a compelling comeback story. The decline may be a chapter, but it’s not the final act. As the streaming landscape continues to shift, one thing remains certain: Netflix, with its rich history and boundless potential, will always be a leading character in the ongoing saga of entertainment evolution.

M. Osama Asghar

Osama is an entertainment journalist who takes pride in his research and work. He has been in the industry for over 6 years with an extensive experience in multiple disciplines. Other than writing, he loves to travel and create short travel films.

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