Few university students actually pay for their Netflix account. If someone you know, whether a parent or significant other, is willing to share his or her account information, then you’re not going to purchase your own separate subscription. No debt-saddled college student would voluntarily squeeze an unnecessary subscription fee into his or her budget between the cost of tuition and living expenses that he or she tallies at the end of each month.
Free subscriptions to Netflix for university students are not some trendy socialist policy requiring government intervention between private enterprise and the general public. Rather, the premise for this idea is based on two economic forces: student loan debt and streaming service competition. The latter of which should compel streaming service companies like Netflix to consider lowering prices for university students to get them off their parents plan and onto their own subscription. The law of inertia suggests this key demographic will likely begin paying the subscription after they graduate and the free trial period ends.
Securing young subscribers provides a critical revenue stream, and as the streaming service wars ramp up, market leader Netflix is going to have to get creative to keep cash—flush competitors from stealing market share in an increasingly lucrative industry. Netflix has been facing increased pressure from investors to justify its high stock price, which as of 2018 was trading at a price-to-earnings multiple of approximately 134. To put Netflix’s price-to-earnings multiple— of which investors use it to gauge whether a stock is over or underpriced, in perspective — its competitor Disney was trading at a price-to-earnings multiple of roughly 16, falling between the market’s historical average of around 15 to 25.
The bottom line is investors are willing to buy Netflix’s stock trading at an astronomically high price so long as its future earnings growth outlook is optimistic, but Netflix’s future earnings growth is in jeopardy and its stock could sink if its competitors — such as Disney, Amazon and Apple — steal market share.
Netflix recently announced a crack down on account sharing, which could either kick university students off their parents’ plan or force them to pay for a premium family plan, is not a market share winning strategy. It’s only going to force college students to reconsider whether we want a Netflix account in favor of a more user-friendly service like Amazon Prime, which also comes with free two-day shipping.
To make matters worse, Netflix also recently raised its monthly subscription rate from $13 to $15, and that’s not even including the premium price for family plans that’ll tack on an extra $2 to $4. Netflix believes the billions it’s spending on original and licensed content will keep users on its platform.
Netflix’s bet may be a bad one. Disney is pulling its content off Netflix by the end of 2019 to form its own new streaming platform, Disney Plus. AT&T also made a move to dethrone Netflix when it recently acquired WarnerMedia and is following through with plans to also pull its original content, notably hit ‘90s sitcom “Friends” off Netflix and onto its own new streaming platform. At some point, Netflix subscribers are going to leave in droves.
Offering a free subscription to university students is a better alternative business strategy for Netflix than unsustainable levels of price increases and content spending. University students love Netflix, but if Netflix is going to treat its customer base like a traditional cable company would, then we’ll leave. In this golden era of entertainment choice coincided with the rise of streaming services, it’s customers who have the unprecedented power to leave for greener pastures, and Netflix is increasingly looking like a slaughterhouse.
Patrick Gagen is a 21-year-old mass communication and finance senior from Suwanee, Georgia.