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Of Subscriptions and Submarines

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In the classic Lewis Carroll poem The Walrus and the Carpenter, one of the titular characters waxes poetic about a number of topics, much to the chagrin of his soon-to-be-dinner listeners:

"The time has come," the Walrus said, /"To talk of many things: / Of shoes—and ships—and sealing-wax / Of cabbages—and kings— / And why the sea is boiling hot— / And whether pigs have wings."

I solemnly promise that I'll not make a dinner of any of you, even if you refuse to read the rest of this column. But for those of good humor, it's time to talk of many things streaming, especially subs and submarines.

Subscribers (subs for short) dominated the financial news around OTT companies in early 2022. Netflix announced in April that of its 221.6 million subscribers, it had seen a decrease of 200,000, which is a 0.09% drop. In addition, the company lost 700,000 subscribers when it pulled out of Russia due to that country's invasion of Ukraine. Netflix's stock slid almost 23% in after-hours trading following the Q1 announcement and is down more than 71% (or $424.30 if anyone's keeping a dollar score) for the year. And this is after the company reported that revenues increased by almost 10% for the quarter.

Netflix blames the subs loss partially on a downturn from increased viewership during COVID. That's fair, as many "stay-at-home" stocks were bound to slide. In fact, the baseline of multiple-OTT service subscribers had already risen from 52% of households in 2014 to more than 90% of households in 2019, according to Parks Associates, making a growth trajectory post-COVID almost impossible. But choice plays a major role too, and exclusive content on newer OTT platforms may draw away subs as Netflix increases monthly fees—or until it provides an ad-based lower-subscription-price option.

One reason Netflix used for the subscriber loss, password sharing among households, seems like a nonsensical excuse, especially since the company knows that this issue has existed since 2016. Then again, I've personally heard stories about Netflix reactivating the accounts of deceased former subscribers—hopefully inadvertently—which should more than compensate for a loss in revenue due to households sharing Netflix passwords.

A big issue faced by consumers of the OTT premium platforms appears to be an intentional decision by the providers to limit consumers' ability to view one platform's exclusive content on any other platform for a few months or even a year. Unless consumers opt to maintain multiple OTT services on a monthly basis—and the inflationary price increases in consumer staples works against this, enough so that Parks Associates now says that almost 40% of OTT subscribers are opting to view only the OTT platforms bundled by their home internet service provider—it is likely that many more OTT premium platforms will also lose subscribers in the next 2 years.

This leads me to the other word I want to highlight: submarines. Attendees to the last few Content Delivery Summits will remember hearing from representatives of a number of undersea fiber-optic cable operators and landing stations and might have even noted the trend in submarine cables being laid by the FAANG (Facebook, Amazon, Apple, Netflix, Google) companies. One of the primary reasons for this marked increase in submarine cables is to handle subscriber growth for each of these platforms. But what will happen to these cables if subscriber growth drops significantly for each of the FAANG companies? And would the increasing push to have European data housed in Europe also further accelerate a dwindling use of these cables? And would it happen to the extent that we may all find there's enough "dark fiber" along the ocean floor that live OTT services could easily broadcast global events to each of the six continents these cables have been extended to over the past 5 years?

"It seems a shame," the Walrus said, / "To play them such a trick, / After we've brought them out so far, / And made them trot so quick!"

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