After posting its first net decline in subscribers for more than a decade on Tuesday and forecasting it would lose a further 2m users in the current quarter, open season was declared on Netflix by investors, analysts and viewers who have become dissatisfied with the streaming giant’s offering.
The company, which has surfed the rising tide of subscription streaming video on demand since announcing itself as a major rival to the Hollywood establishment in the early 2010s, saw its share price fall 35% on Tuesday, with more than $54bn wiped off its market valuation, after confirming it had lost 200,000 subscribers in the first quarter.
The announcement had the distinct feeling of the worm turning. Netflix was ready with excuses and potential solutions, complaining of rampant password sharing and estimating that up to 100m households had access to somebody else’s account in its letter to shareholders. In a later call with investors, Netflix co-CEO Reed Hastings said he was “open” to offering a cheaper, advertising-supported subscription tier after years of resistance.
Time will tell whether Netflix will turn its back on the “binge” model that made its name – foregoing the weekly episode release structure of traditional television in favour of dropping entire seasons on its platform at once – or start releasing more accurate viewership data, but the company’s previously unyielding tenets appear to have become negotiable as it seeks to return to favour with investors.
There are some extenuating circumstances, of course. Netflix would have net added 500,000 subscribers if it hadn’t exited the Russian market (700,000 subscribers) over the war in Ukraine, but impending price hikes at a time of runaway inflation convinced some 600,000 customers in the US and Canada to ditch the company in Q1.
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The forecasted loss of 2m subscribers in Q2, however, indicates an immediate ceiling for Netflix following heady talk of a race to become the streamer to reach 1bn subscriptions, and represents an abrupt halt to growth that was stimulated by lockdowns and smart TV purchases during the darkest days of the pandemic.
Tuesday didn’t come out of the blue though. Netflix shares fell 20% in mid-January when the streamer announced the price hike amid sluggish growth and ever-intensifying competition from legacy rivals such as Disney (Disney+, Hulu) and Warner Bros Discovery (HBO Max) and big-money tech operations (AppleTV+, Amazon Prime Video).
Overall, Netflix’s stock price has fallen 62% this year-to-date from $602.44 per share on New Year’s Eve to just $226.19 at time of writing. The company now has 221.6m subscribers and remains the world’s largest streamer for now, ahead of Amazon Prime (approximately 200m), Disney+ (129.8m), HBO Max (73.8m) and a host of other platforms that have sprung up as the film and television firmament and big tech have sought to curtail Netflix’s growth.
Those rivals appear to have succeeded in doing so, causing investors to flee – more than 100m Netflix shares were traded on Wednesday, according to Dow Jones Market Data – after considering the limited upside of a company spending $17bn per year on hit-or-miss content.
For every The Queen’s Gambit, Bridgerton or Squid Game, Netflix dumps dozens more television shows (500 in total last year) and films on its platform to little fanfare, despite reportedly outbidding itself for many such projects to fulfil its appetite for programming and beat its rivals for the most in-demand talent.
Very few Netflix productions make much of a dent in the public consciousness, especially since they can be inhaled in one go and don’t benefit steady word-of-mouth, and with stalling subscriber numbers, it is certain that investors will question what future return on investment there will be.
Netflix has started to turn a profit in recent years -- $1.6bn in Q1; less than $1.4bn forecast in Q2 – after pursuing growth at all costs, but its income is far short of the likes of Facebook, Apple, Amazon and Google – the FAANG companies it has, perhaps in hindsight, been errantly grouped with.
If continued subscriber growth isn’t in Netflix’s future, could there be a round of belt-tightening in store? The company has already started to transition away from more prestigious productions and mega-money deals for big-name producers towards cheaper reality television, documentary and competition shows, but might it ramp down production and focus on better advertising of its programming rather than leaving success to its algorithm?
The Wall Street Journal reported on Thursday that Netflix would rein in spending and double down on cheaper content in reaction to the week’s chastising losses. It emerged the same day that Stranger Things, one of the platform’s few ongoing, homegrown hits, had a budget of $30m per episode for its upcoming fourth season, highlighting how bloated Netflix still is.
Netflix remains the market leader for now, but as this period of unrelenting growth comes to an end, what has it to lean on if not subscriber and shareholder loyalty? Certainly not the blockbuster franchises and studios (Marvel, Star Wars, Pixar) of Disney, nor the conveyor belt of prestigious shows from HBO and its parent Warner Bros, nor the extensive library of Amazon after its acquisition of MGM.
After being the envy of Hollywood for a decade, it looks more and more as if Netflix, the ultimate disruptor, has squandered its advantage as first mover in the streaming wars. Critics of RTÉ might think twice before picking up this particular cudgel next time Ryan Tubridy and Joe Duffy’s salaries are published.
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