What Netflix needs to do to catch YouTube and TikTok is an ecommerce juggernaut

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In summary:

• What Netflix needs to do to regain its streaming crown from YouTube

• TikTok is set to become an ecommerce juggernaut

To get its crown back from YouTube, Netflix should give users these two functions YouTube has had for years

In May Nielsen released the TV streaming Snapshot and it showed that once again Netflix, Hulu, Disney+, Prime or any other "streaming service" was unable knock YouTube off its pedestal.

Comparing July 2023 to May 2024 streaming segment has effectively stood still as a portion of all TV viewing (38.7% to 38.8%) while YouTube has seen the biggest leap in viewership, jumping from 9.2% to 9.7%.

Netflix and other streaming executives will be hoping the decline is simply a reflection of the times digital cord cutting as the cost-of-living squeeze rolls on. But at CXA we think there's another crucial part to this story, one that has nothing to do with the televisions YouTube is dominating on.

The question we are asking is whether YouTube is winning streaming on televisions because of how YouTube manages the video experience on mobile devices?

There are two key differentiators that YouTube has which most, if any, streaming apps have that could be making all the difference:

1. Vertical Video. YouTube enables 16:9 content to be played in a vertical video format, allowing users to watch content without it taking up the entire phone. Netflix meanwhile, wants its users to be fully immersed in its content, and not only takes up the whole screen but forcing the customer to watch content in a horizontal position.

2. Playing in the background. Some iPhone users on reddit have been reporting they have been able to play videos in the background or with their iPhone otherwise 'off'. Backrgound play has been a feature for YouTube's 100 million Premium users forever, but it intuitively feels like a feature which could be unlocked for non-paying YouTube users should YouTube need a boost in usage and ad revenue, at some point.

Worryingly for streaming services YouTube can no longer be dismissed as a free platform. YouTube Premium now has more than 100 million users globally. With pricing comparable to Netflix, Disney+ and other streaming services in many countries, paying YouTube users now than ever want to ensure they get bang for their buck.

For all the controversies that occasionally happen by some creators, YouTube is also by-and-large a safe place to be. Guardrails against nudity and swearing are ensuring a more family, and individual, friendly viewing environment than ever. YouTube also has the largest content catalogue on earth, with more than 3.7 million new videos equalling over 271,000 hours of content being uploaded every day.

As the saying goes 'proximity equals frequency' - so while Netflix won't be able to challenge YouTube on volume of content (nor does it probably want to), Netflix should be focused on increasing frequency of usage in 'non-TV' moments throughout the day.

The changes Netflix could, and we'd argue should, are adoption two of YouTube's best features: background play when the phone is off and larger picture-in-picture vertical video.

Netflix users will surely still want to watch new content such as the Crown on a horizontal video and television screens to pick-up on visual nuances and clues. However we are quietly confident that if our recent survey of our staff is anything to go by, that much of the content consumed on streaming platforms is familiar 'legacy' content such as Seinfeld, Friends, The Big Bang Theory etc. In other words it is content that was once essential to watch can now be consumed without focusing much on the screen.

TikTok - set to become an ecommerce juggernaut

TikTok shoppers are value-conscious apparel buyers with significantly higher share of spending (26% vs. 24%) to discount stores and trendy fast fashion compared to the average consumer.

The average US shopper is spending more at mid-tier and high-end stores, while TikTok users allocate less to these segments.

As TikTok users increase in age, and TikTok's penetration grows we expect shopping habits via the platform will mature too. This was observed with Facebook and Instagram and there is no reason to believe the same won't occur with TikTok too.