WSJ US BusinessNetflix Seeks Ways to Get Customers to Return After Visits Drop

October 17, 20220
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Netflix Inc. NFLX 6.57% earlier this year saw a worrying signal in its data: Users were coming to the streaming service less often, people familiar with the matter said.

The company, which tracks how many days over a four-week period its members watch content on the service, was concerned that the decline in visits would make it more likely that customers would cancel their subscriptions, the people said.

Following that finding, co-Chief Executive Reed Hastings called on staff to find ways to make subscribers visit the platform more frequently, particularly as viewers re-establish their commuting, travel and entertainment habits after the worst of the pandemic, they said.

The mission to improve visit frequency is part of a broader effort by the company to better assess the value of content that sits somewhere between a smash hit and a flop, people familiar with the matter said.

Over the past two years, that overarching effort included measuring whether a specific program is deemed “sticky”—if it was watched for at least 75 minutes over the course of 28 days—and giving users more tools to identify content they really like, such as a double thumbs-up, people familiar with the effort said. Now, the company is looking more closely at stickiness in concert with how frequently members return to the service.

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Netflix declined to comment.

The company’s growing emphasis on such metrics for making programming decisions comes as Netflix has lost subscribers for two consecutive quarters, something that had never happened before in the streaming pioneer’s history. Netflix has told investors it expects to add 1 million subscribers in the third quarter. It is scheduled to report results for the period on Tuesday afternoon.

Netflix’s shares are down about 60% so far this year.

Adding more urgency to Netflix’s efforts to have customers spend more time on its platform is the November launch of its first ad-supported tier, given that the revenue the company can expect to generate from ads will depend on how many people see them.

Netflix experienced a large influx of new customers in the early days of the pandemic, when lockdowns left many people with more time to watch shows such as “Tiger King.” That trend waned as life started getting back to normal, Netflix raised its prices in the U.S. earlier this year and upstart streaming rivals including Walt Disney Co. ’s Disney+ and Warner Bros. Discovery Inc.’s HBO Max expanded their subscriber bases.

“There are just way more places to put my eyeballs and my dollars,” said Evan Shapiro, a producer and adjunct media professor at Fordham University and New York University.

The Netflix biopic ‘Blonde,’ starring Ana de Armas as Marilyn Monroe. The company has lost subscribers for two consecutive quarters.

Photo: Matt Kennedy/Netflix

Netflix—whose executives used to boast that the service only competed with sleep—now finds itself competing not only with streaming rivals, but with apps such as TikTok and YouTube that are hugely popular among young people.

An internal brand health tracker that regularly surveys consumers about their perception of Netflix showed that young and diverse audiences’ view of the company was flagging, people familiar with that finding said.

Netflix ascended to the dominant spot in streaming with the help of its laser focus on continually finding new ways to measure success. One way Netflix has tried to stoke more regular and prolonged viewing over the past year is by helping subscribers give more feedback on their preferences and diversifying the recommendations they receive.

For example, Mr. Hastings advocated for a new feature rolled out earlier this year that lets viewers give content a double thumbs-up when they loved it, adding to an existing thumbs-up and thumbs-down system, people familiar with that effort said. Those signals—and others, like what viewers add to their watch list—help feed the recommendation algorithm with richer data to improve the suggestions Netflix makes, they said.

Netflix’s subscriber count fell for the first time in nearly a decade, causing its stock to post its worst one-day percentage decline since 2004. WSJ’s Joe Flint walks us through three strategies the company might try to continue growing, and what the changes could mean for other streamers. CORRECTION: An earlier version of this caption said Netflix’s stock plummeted to its lowest point since 2004.

Now, if a show or movie gets a statistically significant amount of double-thumbs-up ratings, it will get a so-called “double thumbs up bonus,” which feeds another metric used to determine whether that content was a good investment, some of the people said.

The company is also considering refining the metric that tracks how many days a month people use the platform to account for people who visit it multiple times a day, particularly as households establish new commutes and routines, they said. That effort is complicated by the fact that many households use Netflix through one main account instead of setting up individual profiles. On top of that, some users share passwords with friends and distant family members, another issue that Netflix has vowed to tackle.

Netflix used to rely on a fairly basic method of measuring audiences: Anyone who had watched a movie or show for at least two minutes was counted as a viewer. By that metric, Gaspar Noé’s movie “Love” was highly successful because of its opening ten-minute sex scene, which was the subject of broad social-media chatter during the pandemic in 2020, some of the people familiar with the matter said. A lot of viewers—known internally as “starters”—tuned in to begin watching it.

Last year, Netflix dropped the two-minute metric for its public rankings and instead started to rank content by total hours viewed. By that new metric, shows such as “Dahmer—Monster: The Jeffrey Dahmer Story” have been big hits. It drew more than 700 million hours of viewing since its late-September release, making it Netflix’s second-most popular English-language TV show after “Stranger Things: Season 4.”

‘They can no longer rely on adding 20 million new subscribers…so they have to focus on not losing 20 million subscribers.’

— Michael Pachter, analyst at Wedbush Securities

The company is also exploring changes to its “surprise me” feature, which recommends something completely different from a person’s past viewing preferences, the people familiar with the matter said. As a result of one potential change, users would be asked to choose the genre of the surprise content that would be recommended, they said.

Wedbush Securities analyst Michael Pachter said the efforts indicate that Netflix is getting closer to hitting a subscriber ceiling.

“They can no longer rely on adding 20 million new subscribers,” he said. “So they have to focus on not losing 20 million subscribers.”

‘Cobra Kai,’ a series that carries on ‘The Karate Kid’ tale, is one of Netflix’s most-watched shows.

Photo: Netflix

Write to Sarah Krouse at sarah.krouse@wsj.com and Jessica Toonkel at jessica.toonkel@wsj.com

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