Netflix’s first quarter 2022 results caused a stir, with subscriber numbers down 0.2 million from the previous quarter. Some call it “the Netflix peak”, but it’s not a Netflix-specific issue. The decline shows that Netflix does not operate in isolation and is only part of the interconnected attention economy – an attention economy that is now entering a recession. This is a recession that MIDiA first called to mind in February 2020 and to which the broader market has begun to wake up.
The Attention Recession – After the Boom
When MIDiA made the prediction of ‘the next attention slump’ over a year ago we identified that once the world began to revert to pre-pandemic behaviors, the Covid rebound in entertainment time would recede, creating a recession in attention. The attention economy had already peaked at the end of 2019, meaning that the pandemic and its lockdown-related attention boom have delayed the inevitable negative effects of businesses competing in a now saturated attention economy. During the lockdown boom, media time increased by 12% and all forms of home entertainment explodedbut as we warned at the time, the effects were temporaryentertainment companies therefore had to plan for life after the lockdown.
A return to a smaller, recently constrained pre-pandemic attention economy was always going to be painful. We called this contraction a recession because we knew there would be obvious economic aftershocks. Not least because the impact was felt unevenly. As the first signs of contraction showed, not all sectors were affected in the same way. Sectors in the midst of a pandemic boom, such as audiobooks and podcasts, have seen larger portions of their newly discovered consumer time vanish. Music has regained some of its lost share. Video (Netflix included) fell, but social and social video completely wrapped up the trend, not only recouping some lost share, but actually rising throughout the pandemic period to end it with more hours when she entered it. The arithmetic is simple: the total number of attention hours decreases, the number of social hours increases, therefore the rest of the attention economy collectively experiences a double shot the decline of time and money.
The wider economy is starting to bite too
But, unfortunately, there is more. Since MIDiA made the case for an attention recession, global geopolitical and economic situations have changed – to put it mildly. Inflation was already skyrocketing before Russia invaded Ukraine, and the impact of war on grain and energy supplies will only accelerate inflation even further. Simply put, consumers will feel increasing pressure as wages accelerate to keep up with rising prices. Discretionary entertainment spending will be one of the first casualties. Video subscriptions have inadvertently made them an easy target. The sheer volume of choice and competition, combined with rolling monthly subscriptions, makes it all too easy to drop a subscription without seriously hurting your overall video experience. But as streaming services now face potential savvy switch cataclysm, traditional pay-TV companies are locking their subscribers into legally binding long-term contracts. It generally costs consumers MORE money to cancel contracts, defeating the purpose of reducing expenses. Therefore, one might even see the cord cutting / SVOD growth dynamic reverse for a while.
In 2020, when we started writing about the potential impact an economic downturn would have on entertainment, we identified that 22% of consumers would cancel one or more video subscriptions, and 22% would switch from paid to free on music. Netflix’s earnings are the first signs of this consumer intent manifesting itself. Other subscription video-on-demand (SVOD) services should not consider themselves immune. Even if the economy were to stabilize tomorrow, the long-term prospects for SVOD will most likely be defined by savvy switchers who continually hop from service to service to watch the shows they want. SVOD subscribers had found themselves thinking that the new boss was pretty much like the old boss, having to subscribe to so many services that their SVOD spending looked a lot like those old pay-TV bills. In times of recession, consumers will need SVOD more than ever to benefit from the price advantage.
When rising prices can be a hindrance, not a help
Much has been said about the great job Netflix has done to raise its prices while music streaming hasn’t – heck, even I did it. Raising prices above the rate of inflation may a) reflect Netflix’s true market value and b) contribute to revenue growth, but it exposes Netflix to a hypercompetitive SVOD market that is entering an economic recession. attention and, potentially, an economic recession.
Circumstances may well seem very different for music. First, the vast majority of music subscribers only have one subscription, so if you cancel, you lose. everything the benefits of a paid account, not just a slice of choice. Second, music subscriptions have declined in real terms because they have not kept up with inflation. In fact, prices have hardly budged for 20 years. Although this has long been seen as a problem, in the current circumstances it could be an asset. Music subscriptions represent good value for money, and with inflation pushing upthey will represent even better value for money as the months go by. Now may not be the best time to raise music prices.
Reasons, not means, to devote attention
So with all of this misfortune, how can entertainment companies survive – maybe even thrive? Long-term annual billing for digital subscriptions is a logical step, but for those who don’t have one, it’s not the best time to try to commit to large payments, unless it’s there are serious adjustments. Multi-format bundles, like Apple One and Amazon Prime, will also do well. Ad-supported services will also work well. But it will take more than smart billing and bundling. This will require a fundamental reassessment of the relationship with the public.
One of the main calls that MIDiA made in our 2022 forecast report was the new need for reasons, not means, to pass from attention in the recession of attention:
“[Entertainment companies] not only will lose time, but will eventually fall below pre-pandemic levels. With such fierce demands on their time, audiences will need to have reasons, not means, to devote their attention.
It could also be the time for the next generation of emerging tech majors like Byte Dance and Tencent, whose companies are heavily focused on ad-supported fandom and monetization rather than the commodified model of monetized consumption. As the drop in the number of Facebook users shows, even in the booming social sector, market realignment is underway.
In the attention recession, entertainment companies must begin to understand that consumer attention is a scarce and not abundant resource – a resource that must be earned, not claimed. Those who aren’t will be the most vulnerable to the vagaries of the attention slump.