Netflix Faces Challenges as Consumers Leave Their Couches

Netflix’s Q1 Subscriber Growth Declines

Netflix’s (NFLX) subscriptions skyrocketed during the pandemic. But with vaccinations rolling out, shutdown restrictions easing, and competitors circling, the streaming giant is facing new challenges.

Netflix added about 37 million new subscribers during the pandemic, and its subscriber count hit 204 million by the end of the year. But Netflix wasn’t the only streaming service to see a big jump in demand. Consumers also flocked to Disney’s (DIS) Disney+, Apple’s (AAPL) Apple TV+, and other streaming services.

Netflix is still the leader in the US market but maintaining its position may prove difficult. Yesterday the company reported that it added 3.98 million paid subscribers during the first quarter of the year, which was significantly below expectations. For future guidance, Netflix also said it’s only expecting to add about 1 million subscribers in the current quarter.

Shifts in Consumer Spending

As more people receive COVID-19 vaccines and the economy begins to reopen, consumer spending habits are changing. Airlines are reporting an increase in bookings, movie theaters across the country are operating again, and restaurants and hotels are ramping up hiring to meet demand.

All of these trends mean that people are spending less time on their couches watching Netflix. In 2020, the average amount of time US consumers spent watching Netflix rose 20% compared to 2019 levels. Now that Netflix will have to compete with in-person entertainment, it may be difficult to hold onto its new users and continue to grow.

Additionally, Netflix’s rivals are getting more competitive. Other streaming platforms are discounting their services to draw in customers, while Netflix recently raised its prices. Though this choice may help Netflix’s bottom line, it could also make subscriber growth difficult.

Netflix Bets on Original Content

Netflix is aware of the increased competition and has been making changes to address it. The company is building up its library of original shows to appeal to consumers across the globe. It is also trying to secure the rights to content produced at other studios. Netflix recently inked a deal with Sony Pictures Entertainment (SONY) to be its domestic streaming partner for theatrical movie releases.

Competition in the streaming content market is heating up at the same time that consumers are itching to get out of their homes. It will be interesting to watch how Netflix responds to these changing market conditions.

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