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Netflix CEO Reed Hastings may have missed the real reason why U.S. subscriber numbers plunged

Consumers turn to a trusted source when they don’t know what to watch on their streaming service

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By Andrew Keshner


20th Century Fox Film Corp./courtesy Everett Collection
There’s a clear option for the indecisive.

New research on how consumers react when they don’t know what to watch on their video-streaming service could help explain why Netflix is losing subscribers.

Netflix’s /zigman2/quotes/202353025/composite NFLX +0.31% second-quarter earnings report last Wednesday revealed fewer new subscribers than expected. But Nielsen’s analysis on viewing habits might help explain what consumers have been doing if they haven’t been buying Netflix subscriptions of late.

The company said it added 2.7 million subscribers across the globe in the second quarter. The company had predicted it would add nearly twice that (5 million subscribers) and analysts were disappointed. The company also lost 126,000 subscribers in the U.S. in the second quarter, the first such loss since 2011.

That sent Netflix’s stock tumbling. (Netflix did not respond to a request for comment on this story.)

“We think Q2’s content slate drove less growth in paid net adds than we anticipated,” Netflix executives said in a letter to shareholders this week. Netflix CEO Reed Hastings said that would be a focus in the third quarter, and said the third series of “Stranger Things” had already broken records.

Some 40.7 million household accounts have been watching the show since its July 4 global launch, the company said on Twitter /zigman2/quotes/203180645/composite TWTR +0.09%  — “more than any other film or series in its first four days. And 18.2 million have already finished the entire season.”

But Nielsen has another, perhaps more troubling, theory that goes beyond other streaming competition from shows on Hulu, Disney /zigman2/quotes/203410047/composite DIS -0.54% , CBS  and Amazon: When there’s just too much video streaming content to choose from, viewers turn to a trusty old friend: broadcast television.

If video streaming subscribers don’t know what they want to watch, they’re almost twice as likely to tune into their favorite broadcast television channel (58%) rather than browse through the menus of their streaming services (33%), according to the research from Nielsen.

Streaming service recommendations do not appear to carry much weight either — 44% of polled viewers said they would scan through television channels to decide what to watch, while 26% said they watch shows recommended by their subscription service.

When viewers are indecisive, the preference for television is stronger within the 35 to 49-year-old demographic, compared to viewers between the ages of 18 and 34.

Subscriptions like Netflix and Amazon Prime offer plenty of critically-acclaimed, award-winning content. But the thing is, viewers have to pick which movies and series they’ll watch, and observers say many are getting burned out from all that decision-making.

In addition to its rotating library of existing feature movies and TV shows like “Friends,” Netflix has ramped up creation of its own content, releasing some 1,500 hours of original series and movies in 2018, by one estimate . Viewers between age 18 and 34 spent 9.4 minutes browsing through content. Viewers age 35 to 49 spent 8.4 minutes.

Research by behavioral psychologists has shown that too many choices can overwhelm consumers , create the unpleasant feeling known as “decision fatigue” and sometimes leading them to shut down and walk away from a potential purchase .

Television viewers also need to choose what channel to watch. Yet part of the allure might be how television just beams whatever’s on the channel instead presenting viewers with even more options on what to watch.

2018 marked the first time ever that there were online video subscriptions than cable subscriptions across the country, according to the Motion Picture Association of America. There were 613.3 million streaming subscriptions globally, and 556 million cable television subscriptions, the organization said.

Video streaming is an increasingly crowded business. Apart from Hulu, CBS’s streaming service and Amazon Prime, there’s also HBO Now and Sling TV to name a few. Disney’s service, Disney Plus, will launch in November, and Apple’s /zigman2/quotes/202934861/composite AAPL +1.11% own service is scheduled to go live later this year, though there’s no exact date yet. AT&T /zigman2/quotes/203165245/composite T +0.92% , which owns HBO, is also planning to launch HBO Max this spring.

Netflix shares are up more than 20% year to date, compared to a 16% gain for the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.17% and a 19% increase for the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.39%

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Andrew Keshner is a personal finance reporter based in New York.

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