Netflix had over 200 million paid subscriptions at the end of 2020 and could be heading for 240 million by the end of 2021. In the face of increasing competition from major media companies, Netflix is going to have to work harder to demonstrate the value of its monthly subscription, for users who are finding it harder than ever to decide what to watch. It is rolling out a feature that will play a personalised recommendation, saving users the bother of browsing.
In 2020, Netflix added a record 37 million paid subscriptions, received over $25 billion in annual revenue, up by 24% year on year, and grew operating profit by 76% to $4.6 billion.
Over the year, 83% of the subscriber growth came from outside the United States in Canada, with 41% of net additions coming from the Europe, Middle East and Africa region.
Netflix faces increasing competition from other online services, notably Disney+, which gained 87 million paid subscribers in its first year.
The company is reluctant to provide a projection for subscriber growth in 2021 but is conservatively forecasting a gain of 6 million subscribers in the first quarter. That is considerably down on the 15.77 million it added in the first quarter of 2020, when coronavirus restrictions were imposed.
Nevertheless, subscriber growth is a function of scale and it seems reasonable to expect Netflix to pass 240 million subscriptions in 2021.
Netflix realises that in order to maintain its subscription model it is going to have to continually delight its users.
The company is planning a global roll out of a feature that will allow users to click one button for a recommendation to play immediately.
Speaking to analysts, Greg Peters, the chief operating officer and chief product officer, explained: “I think Netflix members come to the service seeking to be entertained in a whole variety of ways. Sometimes they’re looking for a movie or sometimes a TV show or animation or scripted or unscripted. And sometimes they show up and they’re not really sure what they want to watch. And so we’ve had the opportunity to try and be innovative and try new mechanisms to sort of help our members in that particular state.”
He did not explain how Netflix will necessarily know what the particular user wants to watch. Understanding that is harder than one might imagine.
Reed Hastings, the co-founder and now co-chief executive of Netflix joked that it might be called “I’m feeling lucky”. That was a reference to a Google feature that allows users to bypass search and skip straight to the top result.
Greg responded by saying: “We’re going to come up with something better than that”. In testing, Netflix offered Shuffle Play feature, a reference to the re-ordering of playlists offered by music players, which sounds rather random. It also experimented with a “Play Something” option, which sounds rather desperate.
Netflix is planning to release around 70 movies a year. In so doing it is taking on the major movie studios, which produce around 90 between them. It seems the ambition is to take on the movie business as much as television.
Ted Sarandos, the chief content officer, suggested that the subscription model makes customers more adventurous about what they watch. He proposed that you can throw out a lot of preconceived notions about what works and what does not because they are based on other business models.
“What they love is for a low price, they get to watch an unlimited amount and be very experimental,” added Reed Hastings.
At least, Netflix hopes that its users will be more experimental, which might mean watching more of what its servers recommend.