The alarm lights on Netflix. A drop in 200.000 subscribers during the first quarter and 2022 and an even higher forecast of 2.5 million for the second quarter are of concern. The news shook the stock market, with a 000% drop in the value of its shares. Can a company that celebrates its twenty-fifth anniversary this year resist the blow?
Much water has flown since when, in 200, Marc Randolph and Reed Hastings created Netflix, a video club that sent its DVD movies by mail in the United States, after requesting them through an internet interface. With this system, they could offer all the movies and series on the market in this format, and the task was to deliver them as quickly as possible. Their catalog was unparalleled, and they didn’t need the physical stores of their rivals, of which Blockbuster was the main one, which they managed to eliminate literally. So they built an image cool, with ideas such as the establishment of a fixed monthly subscription quota that allowed to see all the desired titles, being able to retain up to three, and the suspension of the fines for late returns.
streaming would change everything, and not always in the way Netflix wanted. In the beginning everything was going well. Netflix got ahead of the predictable competition by delivering films online like no one else, starting its international expansion and maintaining the philosophy of its physical video club with which it lived. And the big Hollywood studios had a source of extra revenue, ceding the rights to their productions for a period on the internet.
But such a situation could only be temporary. The Big Five began to develop their own streaming platforms and would gradually close their product brand to Netflix. So, irony of fate, his video club online would have far fewer titles than the physical one. Disney would put its product, which includes the Fox catalogue, on Disney+, and HBO Max would do its own streaming with the Warner collection, which would imply saying goodbye to the super -Marvel and DC heroes, the Star Wars franchise and Disney and Pixar animations.
Own production and catalog expansion
The solution for Netflix, planned since they launched streaming in 2019, was to create a catalog of films and series attractive enough not to show the impact of the titles that abandoned their ship – this with the driving under the responsibility of content by Ted Sarandos, co-president of Netflix with Hastings.
Por On the other hand, the investment in production was heavy: in 2019, it reached 8 billion dollars, greater than that of any classic studio. Injecting a lot of money, they managed to count on prestigious titles (Roma, by Alfonso Cuarón, The Irishman, by Martin Scorsese, Mank, by David Fincher, in search of an Oscar for best picture, against which there is resistance) and other very popular ones, such as Red Alert by Dwayne Johnson, or series like House of Cards and Stranger Things.
In addition, they designed a penetration strategy around the world, supporting local productions in the new territories where they sought to establish themselves, sometimes achieving titles that only triumphed not there, as they had global repercussions. This is the case of the Spanish seriesLa casa de papel or the Korean series Round 6.
The danger of not diversifying
But Netflix’s strength is also its weakness. From the beginning, they set a goal: to deliver to customers what they wanted to see on their screens, as efficiently and quickly as possible. Its competition, whether associated with studios (Disney+, Hulu, HBO Max, Paramount+, Peacock) or another type of company (Amazon Prime Video, Apple TV+), has a diversification of its business, because they sell broadband, in theme parks, television channels, technological products, sale of any type of merchandise that can be delivered at home, etc. And although this can produce dispersion when achieving and fulfilling goals, it presupposes the advantage that not all eggs are in the same basket.
So far, Netflix has known the luck factor in its business ; for example, tragedies like the 11 of September or the covid pandemic led to the confinement of people, which boosted subscriptions. But at some point the wind would have to stop blowing in your favor.
The question is whether it is sustainable a company whose only income, at present, comes from subscription quotas and capitalization on the stock exchange. Although there have been great benefits and liquidity every month, the need to invest in own production to retain customers again generates new expenses, which points to a bubble that could burst at any moment. Among other things, because it is not clear that a person or a family wants to subscribe to various streaming platforms and, when doing so, it is more likely that choose one associated with a familiar brand, Disney, or one that has a catalog with a long history (in the case of platforms associated with the Big Five). Amazon moved in this direction, with the decision to buy the MGM catalog for Prime, which also gives it the option to produce around franchises from that catalog, such as James Bond.
Anyway, there doesn’t seem to be room for all platforms, and maybe in the end they end up being dismembered and reintegrated packages, where the user chooses what he really wants to see, now dispersed among the different options.
An announced crisis
Despite the alarmist headlines, the Netflix crisis was already in sight. Even though until now the company had grown in number of subscribers, reaching a peak of around 222 million, there were already some signs of exhaustion and reaching the ceiling. In fact, in the United States, the figure has been stagnant or in slight decline for some time, and it was the new markets, such as Asia, that managed to slightly cover the situation.
To try to compensate for the drop in revenue, at the beginning of 2022 an increase in monthly subscriptions was announced, which was justified by the need to continue offering unique and memorable premieres. Netflix has made it an obligation to present news as an event, which, in the end, is a heavy burden to which one cannot always give the desired high level, not even hiring the best artists for their creations. The decision to make subscriptions more expensive did not go down well, nor did the announcement of taking steps to avoid sharing Netflix’s password with other users, which would be holding back the company’s growth.
such an unpopular measure, there was no shortage of commentators to point out that Netflix would be gaining Blockbuster airs, by falling into mistakes similar to those of its former rival. Netflix is no longer the young company it once was, with a small group of pioneer workers, hopeful as a family with the idea of taking it further. Now it’s a big corporation whose managers like to compare themselves to a football team, so they have to have the best in each position. That is, they are already like any of the other companies in the competition, which think first of all about the results, and not about innovation and the desire to offer a unique experience to the user.
If Netflix If you were in a position of strength, perhaps these decisions to generate more revenue didn’t go so badly, but now the feeling is one of weakness, and some ideas expressed by Reed Hastings suggest fear of not being able to overcome the situation: “Those who have followed Netflix know that I was against the complexity of advertising and that I am a great admirer of simplicity in signature”, he assured earlier… to add that “I am still a bigger fan of consumer choice”.
Certainly, the Netflix has no experience marketing advertising, but offering a cheaper subscription to the service with ads no longer seems impossible.
To attract more audience, Netflix tested formulas such as realities and inclusive and is outlining the video game offer. Other ways to increase revenue, even if they are not mentioned, could be through the sale of TV broadcasting rights or access via other platforms, and the sale to individuals in physical format or downloaded via the internet.
It would also be necessary to give more life to its series, giving up its decision to premiere complete seasons and offer weekly chapters, as almost all its rivals do. And offer live shows, whether sports or musicals.
Although perhaps, in the end, Netflix’s destiny will end up being the forge of an alliance-merger-absorption with some of the Hollywood companies that still don’t have a big streaming platform, as could be Sony, Paramount, which is in its infancy with Paramount+, or Universal, with a Peacock that hasn’t gone far beyond the borders from the United States.
José María Aresté is the author of the book La Guerra del Streaming. (Madrid: Rialp,
©2022 ACEPRENSA. Published with permission. Original in Spanish.