Supermarket groups Asda and Morrisons have announced efforts to help struggling shoppers during the cost of living crisis.
Many people in Britain are facing an increase in energy bills, council tax and the effects of a national insurance tax rise - as well as inflation hitting a 30-year-high of 7% earlier this month.
Asda said it will invest more than £73m to keep the prices of more than 100 essential items low until the end of the year.
Morrisons said it has reduced prices on more than 500 products and introduced new and improved multi-save deals.
Asda said prices on affected items would come down by an average of 12%, while Morrisons said its reductions would average 13%.
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It comes after Asda's Pulse Of The Nation survey found that nine out of every 10 consumers are worried about inflationary pressure, and 87% are worried that grocery prices will increase this year.
The supermarket chain's Income Tracker also found that the nation's lowest-income families had 74% less disposable income in March compared to the same time last year.
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Asda also announced a pay rise, increasing its hourly rate to £10.10 from July.
Mohsin Issa, co-owner of Asda, said: "We know that household budgets are being squeezed by an increasing cost of living and we are committed to doing everything we can to support our customers, colleagues and communities in these exceptionally tough times."
David Potts, chief executive at Morrisons, said: "We know that our customers are under real financial pressure at the moment and we want to play our part in helping them when it comes to the cost of grocery shopping.
"These price cuts will have a noticeable and long term impact on our customers' budgets and demonstrate our commitment to offering them the best possible value."
Four lucky streets across Yorkshire have bagged up to £3,000 playing the People’s Postcode Lottery.
The winners were announced this morning (Sunday) as the 20 daily winners were revealed. Postcodes from North Ferriby near Hull, Leeds, Wakefield and York were picked.
Every day players of the People’s Postcode Lottery are in for a chance to win £1,000 if they play with one ticket.
But the jackpot doubles to £2,000 if they play with two tickets and it goes up to £3,000 if they play with three tickets.
A minimum of 32 per cent of ticket sales goes directly to charities and players of People’s Postcode Lottery have raised over £600 million to date for thousands of good causes in Britain and beyond.
The following streets were announced as today’s lucky winners:
HOUSEHOLDS who have been automatically switched from failed energy suppliers to new providers are being stung by direct debit rises of nearly 300 per cent.
With the energy price cap having risen by only 54 per cent in April, families feel they are being “robbed” by energy bosses looking to stockpile cash.
Greedy energy firms are increasing direct debits by 300 per cent – despite the energy cap rising by a sixth of thatCredit: PA
Mum-of-two Leigh is refusing to pay her new tariff after her energy provider upped her bill by more than 300 per cent
Carly says: 'It’s outrageous. I feel helpless. It’s hard enough right now to find money for food and essentials without this extra strain'
Maxine says: 'Energy firms are taking the mickey, trying to make the most of the situation, stockpiling as much money as they can'
A Sun on Sunday investigation has found that firms are set to take vast sums from customers’ bank accounts to give themselves a buffer in case fuel prices rise again.
Energy market regulator Ofgem is now investigating the “troubling signs”.
Business minister Greg Hands last night told The Sun on Sunday: “We’re cracking down on any unacceptable behaviour. Energy suppliers are hereby on notice if they have unfair and unjustified direct debit increases.
“Ofgem’s review will ensure they are held to the high standards the British public expects.”
The startling rise in household bills comes after the energy price cap — the maximum amount companies can charge per unit of gas and electricity — increased to £1,971 a year for an average household.
When an energy supplier goes bust, regulator Ofgem automatically assigns a new provider — but unsuspecting consumers have seen bills soar after their original providers went bust and they were moved.
Direct debits are based on predicted energy use across the year and then divided into equal monthly payments.
Customers will usually pay more than they need to in the summer so they have enough credit to cover the colder winter months.
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But firms have to take reasonable steps to make sure the direct debit is fair and based on the best information they have about the amount of fuel a customer uses.
The debits are reviewed at least once a year — and can increase or decrease depending on how much energy has been used.
Those who have been hit include Maxine Cassidy, 33, who used to pay £60 a month in the summer, rising to £90 in the winter, for her gas and electricity with provider Pure Planet.
But after the company went under during Covid she was moved to Shell Energy, who now want to charge her £344 a month — an increase of nearly 300 per cent.
Recruitment consultant Maxine, who lives with partner Joe Small, 41, a mortgage adviser, in a three-bed property in Harpurhey, Manchester, told The Sun on Sunday: “As soon as I got the letter I turned the heating off.
“I’ve got no intention of turning it back on again until the winter.
“I think energy firms are taking the mickey, trying to make the most of the situation and stockpiling as much money as they can.”
Maxine is contesting the new rate.
Shell Energy said the increase in her direct debits included a previous debt.
Teacher Carly Hayward has seen a 222 per cent rise in her direct debit and feels angry and “helpless”.
The 34-year-old was automatically switched to British Gas after PFP Energy went bust during lockdown.
She was shocked when it said her new variable rate was £145 a month — up from the £45 direct debit she was on.
‘We’ve had to turn our heating off’
Carly, who lives with partner Tom, an NHS worker, and their nine-year-old daughter in a two-bed property in Littleport, Cambs, said: “There’s no way we’ll be using that — we’ve always been incredibly frugal about the level of gas and electricity.
“The increase makes no sense whatsoever so I feel robbed as I am sure this is money which should be in my bank account, not being stockpiled by my provider.
“It’s outrageous. I feel helpless. It’s hard enough right now to find money for food and essentials without this extra strain.”
British Gas said Carly is not being overcharged and she is carrying over a debt which is included in her new plan.
A spokesman added: “Her direct debit recalculation also takes into account that she will be rolling off her old fixed tariff and moving on to the standard price cap rate.”
Leigh Divey, 35, is refusing to pay her new tariff after her energy provider increased her bill by more than 300 per cent.
The mother of two, who runs a homecare services business, was paying £64 a month to Pure Planet for gas and electricity.
But when they went bust she was moved to Shell Energy and told her new bill will be £265 a month.
Leigh lives in a three-bedroom house in Watford with her two daughters and partner Billy, 37, who works in film production.
She said: “We are in dispute and refusing to pay the new tariff. I think it is unfair and unrealistic for any energy firm to think their customers would be able to afford that.
“They’ve told me that if I don’t sign up to the tariff I will end up in debt on my energy use. But there is no way we will be using this amount of gas and electricity every month.
“It is incredibly hard. We have a seven-month-old. We are lucky it is summer because we have had to turn our heating off now.”
Check bills
IF you think your direct debit has gone up excessively, you can challenge it.
I’ve heard from customers who have seen charges rise by 100 per cent while their usage has stayed flat.
Take a look at your bill and see how much energy you have used.
If your direct debit has gone up by more than 54 per cent then you may want to request your payments decrease.
Call your energy firm to discuss it.
But beware – you don’t want to end up in debt later on.
Shell Energy said Leigh’s new proposed figure was to stop her getting into debt.
A spokesman added: “We recognise that increasing energy bills are a cause of concern to many customers.”
Jade Plant, an NHS mental health practitioner, pays £246 a month to Octopus Energy after previously paying £74.50 to Avro Energy.
The 30-year-old, who lives in a three-bed house in Wolverhampton with husband Spencer, 36, a carpenter, and their year-old son, said: “When we received our higher bill we contacted Octopus to challenge it. We were advised there was nothing they could do and this was one of the cheapest tariffs.
“We work hard for everything we have, but now it feels as though we’re being punished for working hard just to live.”
An Octopus Energy spokesman said that Jade’s previous supplier Avro had allowed her to pay an artificially low price for the energy she consumed and she faced ending up heavily in debt if she remained on such a low repayment plan.
The spokesman added: “This is not an example of a rip-off price. Avro encouraged customers in with rates that were so low they didn’t even cover costs.
“Another reason why Jade’s direct debit is high is because she is a high energy user, using almost twice the amount of gas that a house her size would use on average.”
Calls to Citizens Advice from desperate families struggling to pay their bills have nearly doubled in the past month.
Last year, a Uswitch survey found suppliers were sitting on £1.8BILLION in credit balances because direct debits were likely to be too high and companies were not attempting to correct them.
Suppliers should automatically return customers’ credit balances to £0 each year on the anniversary of when they started payments.
But the Uswitch survey found that many had not.
Some small energy companies that have gone bust in recent years owe customers millions of pounds, and households are waiting months or even years to be reimbursed by their new suppliers.
Uswitch head of policy Justina Miltienyte told The Sun on Sunday: “Suppliers have a responsibility to make sure that customer payments accurately reflect their energy use.
“Customers also need to be told beforehand that their payments are going up, and the reasons why.”
Last night, Citizens Advice told us they have seen a 42 per cent increase in the number of people contacting them with billing issues in March compared to the level received in February.
Referring to companies charging inflated prices, the organisation’s head of energy policy, Gillian Cooper, said: “Some suppliers have used this underhand tactic to shore up their finances. This is totally unacceptable.
“Given the pressures facing families, Ofgem needs to clamp down on poor practice to ensure suppliers are only increasing payments for valid reasons.”
An Ofgem spokesman said: “We know customers are worried about increases to direct debits and will be launching a review to ensure suppliers are setting accurate direct debits and do not use customers’ money as working capital.”
Fine threats
BUSINESS Secretary Kwasi Kwarteng has written to regulator Ofgem to ensure suppliers are fulfilling their licence conditions.
And he has asked for stricter supervision of how customers’ direct debits and credit balances are being handled.
Business minister Greg Hands told The Sun on Sunday: “We’re cracking down on any unacceptable behaviour.”
Ofgem has spoken of having “stricter supervision” of firms.
The energy watchdog has raised concerns that suppliers may have been increasing payments by “more than is necessary”.
A spokesman said that “substantial fines” would be issued for companies failing to comply with the regulations.
Probe them
SUN on Sunday Squeeze Team experts have backed calls for more action on the issue.
Martyn James, from consumer champions Resolver, said: “The fact that certain firms seem to be stockpiling cash is simply unacceptable.”
Housing and financial expert Jonathan Rolande, from the National Association of Property Buyers, added: “We are really concerned that potentially vulnerable customers will be hit with inflated direct debits right at a time when household budgets will be under intense pressure.
“With fuel costs up around 50 per cent for most householders, there is no reason direct debits should increase more than that.”
Uswitch 's Justina Miltienyte says: 'Suppliers have a responsibility to make sure that customer payments accurately reflect their energy use'Credit: TWITTER/USWITCH
Citizens Advice's Gillian Cooper says: 'Given the pressures facing families at the moment, Ofgem needs to clamp down on poor practice'Credit: GILLIAN COOPER
Challenge huge energy bill direct debit increases with our top tipsCredit: news uk
Prepare for a 'YEAR' of airport hell: Travel experts warn of 'nightmare' disruption for millions of UK families flying to Europe and the US over the next 12 months due to staffing shortages caused by Covid
Industry chiefs have warned UK holidaymakers to brace for '12 months' of travel hell at airports
Experts said airlines are 'unable to cope with that demand due to a lack of resources'
They blamed staffing shortages on Covid self-isolation and mass layoffs during the pandemic
BA cancelled hundreds of flights to the US and the Far East amid fears other airlines will follow suit
Industry chiefs have warned British holidaymakers hoping to fly abroad at any time this year to brace for 12 months of travel hell due to unprecedented airline staff shortages caused by Covid self-isolation and mass layoffs during the pandemic.
Experts said that airlines 'are simply unable to cope with that demand due to a lack of resources' and warned that the 'nightmare' disruption - of the sort seen over Easter, where hundreds of flights were cancelled by airlines including British Airways and easyJet - could last all year.
BA has axed hundreds of flights up on some routes to the US and the Far East until September, affecting thousands of travellers after it had already cancelled more than 1,000 flights in little more than three weeks.
Routes affected have included from London to Berlin, Dublin, Geneva, Paris, Stockholm, Athens and Prague. The flagship carrier axed another 200-plus flights over yesterday and on Wednesday, affecting an estimated 20,000 passengers.
There are fears that other carriers could also be hit with issues after easyJet cancelled hundreds of flights over Easter.
Kully Sandhu, managing director of Aviation Recruitment Network, told the Express: 'In my opinion, it could be up to 12 months before we see staffing at airports back to pre-pandemic levels. Recruitment for people at airports takes longer than roles elsewhere because of necessary, additional security and background checks.
'Routine recruitment campaigns ground to halt during the pandemic and have been slow to start again as international travel has had a number of restrictions on it until recently. That means the recruitment pipeline was cut off and needs to be re-established.
'Aviation has lost its appeal, not only for returners but also for people who have never worked in an airport environment before.'
George Morgan-Grenville, chief executive of Red Savannah Luxury Travel, added: 'It is an unfortunate perfect storm and airlines and airports are trying to ramp up again after the pandemic.
P&O Ferries Spirit of Britain ship seized over safety concerns CAN sail again: Disgraced company attempts to resume normal operations after it sacked 800 seafarers and a week after Easter travel chaos at Dover port
One of P&O Ferries' biggest cross-Channel ships that had been seized in Dover over safety concerns has now been cleared to sail, as the disgraced company attempts to resume normal operations after sacking nearly 800 employees.
The Maritime and Coastguard Agency (MCA) said that the 700ft long Spirit of Britain, which can carry up to 2,000 passengers and was the first of two 'Spirit' class ships built for P&O Ferries, 'has been released from detention and can commence operations when P&O Ferries are ready'.
The ship's detention at the Port of Dover, along with that of the Pride Of Kent vessel, caused a shortage of ferry capacity in the run-up to Easter on the key Dover-Calais crossing and sparked massive queues of lorries on coastbound roads in Kent.
A total of eight P&O Ferries vessels have been probed by the MCA since P&O Ferries sensationally fired nearly 800 seafarers with no notice via a Zoom video call last month - an action even the operator's millionaire boss Peter Hebblethwaite admitted was illegal in testimony to MPs - and replaced them with cheaper £5.50-an-hour foreign agency workers.
The Spirit of Britain had been held earlier this month and P&O Ferries were requested to fix 'a number of' safety issues raised by the assessment before the MCA carried out a second inspection.
The MCA said it began assessing European Highlander on Thursday and Norbay on Wednesday. The European Highlander, which normally operates between Larne in Northern Ireland and Cairnryan in Scotland, will be allowed to resume voyages once a 'small number of deficiencies' are fixed.
A third vessel called the Norbay, which serves the Liverpool-Dublin route, was also cleared to sail earlier yesterday, the MCA added.
'The travel industry is not an industry that can be turned on and then off again and it was inevitable it was going to take time. My own feeling is I don't think we are going to see a problem-free summer by any stretch of the imagination. If it is as bad as it has been purported to be, I think you will get a lot of very upset people.'
The transport chaos over Easter saw flights to destinations into Europe and the US cancelled by BA and easyJet as they were hit by Covid absences, lack of staff and a surge in demand for travel as restrictions were lifted.
Industry experts have also pointed the finger at security checks for issues with staff numbers, with vetting for new staff taking up to twice as long as the 14 weeks it is supposed to. They also believe that loss of thousands of experienced staff who were laid off during the pandemic has had an impact, with many not returning after finding jobs elsewhere.
BA boss Sean Doyle originally told staff in an internal message that flights would be cancelled until the end of next month, partly due to staff shortages.
At the World Travel and Tourism Council's summit in Manila in the Philippines, Paul Charles, of travel consultancy The PC Agency, suggested disruption could last many months.
'Covid travel restrictions have brought about a destruction of talent through job losses,' he said.
He also told the Telegraph: 'In the short-term you have got Covid [absence] which is becoming less of an issue, but in the longer term, there are still complications over recruiting enough staff.
'BA is only recruiting staff who already have security passes. The airline's planners obviously believe there is a maximum number of people they feel they will recruit, therefore it has to cut back on frequency now based on its expected level of recruitment.
'It is readjusting in order to give as much notice as it can before it's inevitable that they have to cancel those flights anyway. It is responding to concerns expressed by their customers and Government ministers about the lack of notice given to consumers.'
More than 1,140 flights were grounded at Heathrow, Gatwick, Manchester and Birmingham during the Easter getaway - with EasyJet and British Airways both cutting 60 and 98 flights respectively in a single day.
This week it emerged that BA is cancelling half of flights between Heathrow and Miami, reducing them to one each way a day from June 4 until September 7. BA said the cancelled daily flight to and from Miami would be picked up by American Airlines.
In an email to customers the airline apologised and said: 'We'll do everything we can to get you where you need to be.'
BA has already halted flights to Hong Kong and Tokyo and yesterday it said there would be no flights to Hong Kong until September and to Tokyo until October.
It is not yet clear how many other BA flights will be axed over the summer. Passengers who have their flight cancelled are entitled to a full cash refund or the airline should book them on another flight with a take-off time as close to the cancelled flight as possible.
The airline slashed thousands of jobs during the pandemic.
Some easyJet and Ryanair customers have also taken to social media to report their flights being cancelled.
One wrote: 'Could @easyJet make it any more difficult to get in touch with them? The cancelled my flight there but won't let me cancel the return flight back?'
A second said: '@easyJet AWFUL - can you please explain why my outbound flight to Cagliari on the 10/05/22 has been cancelled with less than a months notice? Would appreciate a response as this is the third tweet I have sent and have been ignored.'
While a third added: ' @Ryanair Hi I need a solution to the cancelation of my flight to Venice. Twice you have cancelled (22 and 23 of April) without a solution. We don't have options now to go and we are costing all the extras expenses.'
Despite the social media furore, easyJet told MailOnline in a statement: 'We are planning to operate our normal summer schedule which is on average around 1700 flights a day this summer.'
Mr Charles said: 'Airlines are certainly seeing a high level of demand to fly, but are simply unable to cope with that demand due to a lack of resources. It's a nightmare situation for airlines and airports at the moment.'
Martin Chalk, general secretary of the pilots' union Balpa, also told The Telegraph: 'The chaos witnessed at British airports may well be repeated throughout the summer because airlines, laden with debt… have not yet rehired enough staff.'
The rise in bookings is overtaking the number of airline staff being hired, which is being further exacerbated by security checks.
An industry source further blamed the vetting process, saying it can take up to six months before someone is able to come in and do a job at an airport.
But a spokesperson for the Department for Transport (DfT) contended the 'aviation industry is responsible for resourcing at airports', adding: 'They manage their staff absences, although we want to see minimal disruption for passengers during the Easter period.
'The requirement for Counter Terrorist Checks for aviation security staff is important for the protection of the travelling public and the Government continues to process these security clearances in a timely manner.'
Speaking at a global industry summit in Manila in the Philippines, Julia Simpson, CEO of the World Travel and Tourism Council (WTTC), acknowledged 'that there are concerns' about BA's recent performance.
But the former BA executive and Downing Street advisor added: 'I think these are more wrinkles as we pull out of the pandemic and rebuild.
'BA remains a great airline. It's one of the greatest airlines in the world and I think they're just facing issues as they come back post-pandemic. Not all the issues are of their own making.'
She said airline staff shortages, behind much of the disruption, had been exacerbated by delays to security and anti-terror checks. These must be carried out by Government officials for every new aviation sector recruit but are currently taking longer than usual following a spike in applications.
BA boss Sean Doyle's job is on the line over a series of blunders
The future of BA boss Sean Doyle was thrown into doubt yesterday after the airline's owners talked about sacking him because of a string of blunders.
Sources said the board of International Airlines Group (IAG) discussed the possibility at its most recent monthly meeting.
IAG directors are particularly concerned about a lack of investment in IT. Last month BA had its third computer meltdown this year and 1,000 flights were cancelled or delayed over one weekend.
More than 1,000 have been cancelled since, partly because of staff shortages after it cut thousands of jobs in the pandemic.
Passengers say that they have also been unable to get through to customer services or check in online.
Others waited days to be sent luggage that could not be unloaded from planes.
IAG was asked twice if it denied discussing Mr Doyle's future at a board meeting, but declined to comment.
A statement said: 'The IAG board and its CEO fully support Sean Doyle.'
The pound slumped to its lowest level for more than 18 months amid signs the economy is faltering in the face of soaring inflation.
On a worrying day for the Bank of England and Treasury, a flurry of reports showed a slump in retail sales, a collapse in consumer confidence, and a sharp slowdown in private sector activity.
The triple whammy fuelled fears of a devastating bout of stagflation as living standards are hammered by rising prices and weak economic growth.
Warning: While households and businesses are being buffeted by rising energy bills and other costs, Chancellor Rishi Sunak has pressed ahead with hikes in taxes
The bleak news, which came amid mounting political pressure on Boris Johnson, sent sterling towards $1.28 against the dollar – its lowest level since September 2020 in the depths of the Covid pandemic. The pound also dipped below €1.19 for the first time since the start of the month.
While households and businesses are being buffeted by rising energy bills and other costs, Chancellor Rishi Sunak has pressed ahead with hikes in taxes, including National Insurance, despite warnings they could derail the economic recovery from the Covid pandemic.
Michael Hewson, chief market analyst at CMC Markets UK, described the tax rises as a 'fiscal own goal'. He added: 'It is true that he [Sunak] has taken some measures to alleviate the hit to people's finances but it is very much the fiscal equivalent of tinkering around the edges, and points to a very challenging few months for consumers, exacerbated by tax rises which could, and should, have been postponed.'
In a sign of the mounting pressure on family finances, figures from the Office for National Statistics (ONS) showed a 1.4 per cent slide in the volume of items shoppers bought in March, as households felt the pinch from rising prices. Food store sales fell 1.1 per cent, car fuel sales were down 3.8 per cent as prices shot up, and the proportion of shopping done online slipped to 26 per cent – its lowest since the start of the pandemic.
Separate figures from polling firm GfK showed the public is gloomier about the economy than in the financial crisis of 2008. GfK said consumer confidence was in 'freefall' with 'little prospect of any economic relief on the horizon'.
A third report, from S&P Global, showed a sharp slowdown across the services and manufacturing sectors in April.
The closely watched Purchasing Managers' Index (PMI) – where scores above 50 show growth – fell from 60.9 in March to 57.6 this month. While that was still in positive territory, it was the weakest reading for three months and represented 'a much weaker speed of recovery across the UK economy', according to the report.
Prices have climbed as Covid blockages around the world, and the war in Ukraine, push up the cost of raw materials and components. Inflation hit 7 per cent in March and is expected to surpass 8 per cent this month – a level not seen since the early 1980s.
Dean Turner, an economist at the wealth management division of UBS, said: 'The cost-of-living squeeze is hitting economic activity hard.'
The Bank of England is facing a deepening quandary as it weighs whether to hike interest rates again next month, in an attempt to keep a lid on price rises. It has already lifted rates to 0.75 per cent, from their pandemic low of 0.1 per cent.
But further hikes run the risk of throwing the economic recovery into reverse, as they encourage businesses and households to save rather than spend.
Governor Andrew Bailey this week admitted the Bank was walking a 'very tight line' between curbing inflation and tipping the UK into a recession.
It is a basic formula in the television business: make a hit show, renew it and lock in ever bigger audiences. But Netflix, which has spent more than 20 years upending the rules of the entertainment business, may have found a way to defy even this convention.
This spring the streaming service will roll out the latest, highly awaited instalments of two of its most popular series, Ozark and Stranger Things. Yet instead of a boost to its subscriber base, Netflix said this week it expected to lose about 2mn paying customers in the coming months, thanks to a combination of intensifying competition, a maturing US market and its decision to increase prices at a moment when consumers are coping with rising inflation.
After years of bending Hollywood to its will, Netflix finally fell to earth this week as it revealed that its blistering, decade-long streak of subscription growth had come to an end. Its share price fell almost 40 per cent, leaving its market cap at about $97bn — down from $300bn in November.
The news served as a gut check for the streaming industry that has grown in Netflix’s wake. The company’s extraordinary success inspired many of America’s largest media conglomerates to launch or buy their own streaming platforms, including Disney’s Hulu and Disney Plus; Warner Bros Discovery’s HBO Max; NBCUniversal’s Peacock and Paramount’s Paramount Plus. Tech groups Amazon and Apple also launched their own streaming services and content studios in a bid to emulate Netflix’s groundbreaking model.
That model transformed the television and movie industries and launched a fiercely competitive war for subscribers. But the streaming industry’s growth rested on the assumption that there is a global market of up to 1bn households willing to pay for services. Now, some analysts say the actual market may be far smaller — and that it is time for a rethink of the streaming business that Netflix pioneered.
Netflix’s subscriber warning was “almost like an acknowledgment . . . that this isn’t that great of a business”, said Michael Nathanson, an analyst at MoffettNathanson and a longtime sceptic of the Netflix model. “It makes you really wonder if the media companies should roll back some of their ambition to be like Netflix.”
The content arms race
The grim Netflix results appeared to signal the end of a lavish, experimental era of streaming characterised by fast growth, unrestrained spending and a healthy dose of hubris.
When Netflix launched its streaming service in the US in 2007, it was positioned as a new format that would free viewers from the stale conventions of mainstream television and the steep costs and rigid schedules of premium cable.
Initially Netflix offered subscribers access to pre-existing movies and TV shows licensed from other creators. But in 2012, the same year it launched in the UK, it began developing its own content, scoring an early hit with the Washington political drama House of Cards. Netflix upended the traditional model of television by releasing all its episodes at once, rather than week by week, so viewers could binge-watch entire series in one sitting.
The platform proved wildly successful. In the 10 years since, it has reached almost 222mn subscribers in 190 countries, up more than 750 per cent, and it became profitable for the first time late last year.
Netflix’s rise was aided by a long period of easy monetary policy and a historic bull market run, allowing the company to spend heavily so long as investors believed in the strategy. In an environment of low interest rates, investors searching for yield happily purchased Netflix bonds, funding the company’s spending spree on content.
From 2018 through 2021, Netflix poured $55bn into television shows and movies as it raced to compete with major networks and Hollywood studios. Netflix’s push triggered an industry-wide land grab in which every company had to spend big to win. In 2019, Amazon splashed out $1bn on a single TV show — an adaptation of TheLord of the Rings said to be the most expensive show in history.
“One of the reasons [everyone] invested so heavily [from 2017- 2019] was the theory that for the next two or three years, it was all about acquiring subscribers,” said the former head of a big streaming service. “That window of time was when people were going to make the switch. You had to get them. Netflix knew it.”
But the content arms race has only spiralled, as new, deep-pocketed players entered the market and people stuck at home during the coronavirus pandemic boosted viewership numbers. US media groups are together expected to spend upwards of $100bn on content this year. Netflix alone accounts for $17bn of that.
These sums are “historic [and] precedent-setting”, says Tom Nunan, professor at UCLA’s School of Theater, Film and Television, and executive producer of the Oscar-winning film Crash. “These are the types of numbers more associated with the Department of Defense. From single companies like these it’s almost unimaginable — but the numbers are certainly unsustainable.”
Investors change channels
Until recently, Wall Street was cheering the lavish spending on streaming. After Disney unveiled a slate of Disney Plus programming based on Marvel and Star Wars properties in December 2020, for example, its stock briefly hit a record high.
But the sentiment has now changed. A canary in the coal mine moment for the streaming industry came in February this year, when Paramount executives announced big investments into their Paramount Plus streaming service and saw their share price plummet almost 20 per cent the following day.
Wall Street was unconvinced then that a shift to streaming would improve Paramount’s bottom line. But the Netflix announcement this month seemed to confirm something for investors: that no matter how great the programming, it is unlikely that the streaming industry will ever generate the kinds of profits that television and film groups made in the pre-streaming era.
“It’s absolutely a lesser economic model [than cable television],” said the former head of a big streaming service. “The pricing you have to get to in order to duplicate the [cable] market is astronomical.”
Netflix announced a number of measures this week to try to weather the slowdown in subscriber numbers. During Tuesday’s video call with investors, Spencer Neumann, Netflix chief financial officer, said the company would “pull back on some of our spending growth”, though company officials say it will continue to outspend its rivals in the industry on making new films and series.
The company will also lift its long-stated opposition to advertising on the Netflix platform, with Netflix co-founder Reed Hastings suggesting a cheaper, ad-supported service could be available in a year or two.
“I’ve been against the complexity of advertising and a big fan of the simplicity of subscription,” Hastings said on Tuesday. “But as much as I’m a fan of that, I’m a bigger fan of consumer choice.”
But the biggest improvement Netflix needed to make, Hastings indicated, was improving the quality of its programming — the side of the business overseen by co-chief executive Ted Sarandos.
Analysts agree. “Netflix should be creating significantly more must-see TV series and movies that become ongoing franchises,” Rich Greenfield, an analyst at LightShed, wrote in a research note this week. “Netflix’s content, especially its English-language content, is simply not resonating relative to the level of spend.”
This is where Netflix is facing the stiffest competition from its rival streaming services run by long-established content creators HBO, Disney, NBCUniversal and Paramount — not to mention wealthy Amazon and Apple, who are unlikely to need to rein in spending any time soon.
Sarandos, who has worked hard to weave Netflix into the fabric of Hollywood, sounded defensive this week about the need to improve its programming. He claimed that Netflix films such as Don’t Look Up, Red Notice and Adam Project are among “the most popular and most watched movies in the world” (though, as the company does not release viewing figures, investors will have to take his word for it).
He reminded investors that the company was still the new kid on the block in terms of content creation. “We’ve been doing this for a decade,” he said. “That’s about 90 years less time than all of our competitors have been at it.”
But Wall Street may have run out of patience. Already, some analysts are urging the company’s rivals to rethink their spending on streaming. Noting that Sony has been making money by selling its films and TV shows to streaming companies — the so-called “arms dealer” strategy — Greenfield suggested that some of the traditional studios consider giving up on streaming and become content suppliers instead.
“While it feels hard to fathom abandoning streaming ambitions with so much capital committed to original streaming programming over the next several years, we wonder if that is the hard decision management teams such as NBCUniversal and Paramount should make?” Greenfield wrote.
