Let’s have no doubt that for the last decade, Netflix had become the most influential media company in the last half century.  Not only did they contribute much to the cultural zeitgeist through their exclusive content over the years, but they also changed the way that media is distributed to audiences, and how audiences consume their entertainment as well.  Already having caused the collapse of the movie rental industry with their conquest over Blockbuster Video in the early part of the decade, Netflix soon began to make waves through the new advances in streaming movies and TV shows online.  Netflix’s dominance in the early days of streaming made them a force to be reckoned with, as both the movie theater industry and the studios themselves began to fret over the rapid growth they were seeing from the Silicon Valley based tech giant.  Netflix certainly grew rapidly thanks to on demand entertainment options, which brought in many subscribers as well as lucrative contracts with the studios to be the online home for an extensive catalog of movies.  And the growth over that time not only turned Netflix into a multi-billion dollar behemoth in the tech and entertainment industry, but it also sparked their Hollywood division to expand into exclusive content, essentially making them not just a distributor, but a studio in it’s own right.  And invest they did.  Billions of dollars was poured into production of new shows and movies, exclusive to their platform.  This included investment of mega-budget productions that were comparable to tent-pole productions from the major studios; sometimes costing in the ballpark of $200 million.  And those budgets were allocated without the guarantee of box office returns to off-set them.  What Netflix justified the massive spending towards content on was the sustained annual subscriber growth and retention that guaranteed them revenue in the billions on a monthly basis.  But, while subscriptions as part of a company model has often been a favorable thing to tout to stockholders and capital investors, there is always the risk when a company reaches a point when that growth just stops.

That’s what has happened to Netflix recently.  After more than a decade of sustained new subscriber growth, the last quarter revealed a stunning new reality; that for the the first time, Netflix actually lost subscribers.  Now, the numbers do need to be put into perspective.  The total number of lost subscribers was around 200,000 in the first quarter.  Compare that to a total subscriber base of over 250 million worldwide, and the loss was a fraction of a percent, and yet this was enough to sound the alarms.  It didn’t help much that this sudden negative growth came after Netflix forecast as much as 2 million more subscribers in the last quarter.  Missing the forecast by that much was enough to shaken investor confidence in Netflix’s overall value.  The stock price, which had been trading a year ago at almost $700 a share has been in free-fall over the last month.  Now worth just over $100 a share, the stock is still trading comparable to other media companies like WarnerMedia and Disney, but it’s a nearly 700% drop from it’s peak.  Some speculate that this is a much needed correction, as Netflix may have been overvalued in the stock market and that this crash was inevitable.  But, even if Netflix manages to make up some of it’s lost value over the next year, there is one thing they may have lost forever, and that’s their dominance over the streaming market.  Streaming will almost assuredly still remain a key part of entertainment in the years ahead, but the idea that it is Netflix vs. Everyone Else has been obliterated.  In truth, one of the reasons Netflix likely hit this Subscriber wall all of a sudden is because the competition is greater now than it was in past years.  Since 2019, Apple, Disney, WarnerMedia, Universal and Paramount have all launched their own platforms, and in turn have consolidated all of their library material there as well.  Netflix has been preparing for this new eventuality for some time, given the billions of dollars spent on original content.  But, the effect may not have shielded them fast enough, and this has shaken people’s confidence in Netflix’s ability to perform in a more competitive field.

The news of Netflix’s sudden misfortune could not come at a worse time, as Disney themselves have managed to see higher than expected new growth on their platform, Disney+.  Of all the new streamers, Disney+ has seen the biggest rise in subscriber growth since it’s launch, clearing the 100 million mark in little over a year since launch.  The big advantage for Disney is that unlike Netflix, it doesn’t need to rely solely on subscriber growth to offset the cost of production on their movies and shows.  Disney+ is part of a larger company portfolio that includes theme parks, television networks, consumer goods as well as luxury cruises and resort hotels.  While Disney stock likewise has seen decrease from record highs, it’s fall was not as sharp and it’s prospects for growth still give it long term value.  There’s also the fact that streaming channels are also available from companies with nearly endless resources at their disposal like Amazon and Apple.  Apple in particular has been aggressively pursuing prestige projects from the industry’s most valued talent in the same way that Netflix had in the last decade, and it’s paying off for them much faster.  In little over 2 1/2 years since it’s launch, Apple TV+ has already picked up coveted awards like Best Picture at the Oscars (CODA) and Best TV Comedy at the Emmys (Ted Lasso), which Netflix has been pursuing for nearly ten years and has thus far come up empty.  One other disadvantage that Netflix finds itself in is that the more desirable library content has all been re-consolidated back to the studios that made them.  One of the things that made Netflix such a big hit with audiences before was that bingeable shows like Friends, The Office and Seinfeld had all their seasons readily available on it’s platform.  Since then, the shows have been pulled off Netflix as studios like Warner Brothers and Universal wanted to make those shows available to watch on their own streaming channels; HBO Max and Peacock respectively.   So, while Netflix still has a library of their own critically acclaimed, easily bingeable, it’s still not as extensive as the other big studios, which have had a decades long head start.  That’s where a lot of the confidence in Netflix has run out; the other platforms have managed to grow much more quickly, because they had the rights to the things people wanted to see.  Netflix has been doing their best to convince people that they weren’t loosing anything, but instead gaining much more, but sadly, that excuse had it’s limits.

One thing that probably affected Netflix’s staggering drop the most is the fact that their monthly subscription cost became too high for many people.  Once available year’s ago for the low price of $8 a month, Netflix now chargers subscribers over $15 a month, making them now the most expensive streaming service.  Now, subscription cost increases are nothing new, and Netflix is not alone among streamers that have gradually raised their prices over time.  But, at some point, audiences begin to wonder if they are getting their money’s worth when the prices keep going up.  With Netflix raising their monthly subscription at the same time they were losing licenses to shows people wanted to watch on their platform, that question became more and more on people’s minds.  At the same time, Netflix has also cracked down on password sharing, which they believe was affecting their subscriber growth.  That’s honestly one of the disadvantages of having content behind a paywall; the draw for subscribers is determined by the desirability of what’s inside those said walls, and a lot of people were for the longest time being content to leech off of their friends or family who had an account in order to access their shows they wanted.  Because it was easy to do, people just password shared for the longest time, so Netflix would still see a large amount of traffic to their site, but not as many sign ups.  This didn’t seem like a concern when subscriptions were still fairly low, but as concern over competition began to grow, and the need for more costly exclusives grew with it, Netflix could no longer just passively overlook the password problem.  However, by closing the loopholes, it also loses them a growing audience.  Sure, they can save themselves from piracy, but a lot of those people suddenly losing access are not guaranteed to start subscribing for real as a result.  At this point, the higher cost of streaming becomes an issue, as a lot of the people suddenly cut off are probably those who can’t afford the new high rate, and that creates a loss in engagement with the expensive new programing they want people to watch.  Also, subscribers who have been connected for a long time, suddenly are not seeing the value of what they’re buying either, especially when the other streamers have better rates and more interesting content.  And with economic hardship setting in post-pandemic, it becomes a perfect storm for Netflix to all of a sudden handle right now.

Now, at the same time, it has to be stated that Netflix is not going away the same way that Blockbuster Video did in it’s wake.  Despite seeing much of their content moved over to other streamers, they still have their own in-house content that is very much still popular with a lot of people.  This includes hit, awards winning shows like The Crown, Stranger Things, Ozark, and Bridgerton, as well as acclaimed original movies like Roma (2018), The Irishman (2019), and last year’s The Power of the Dog (2021).  And just last year, Netflix enjoyed the success of it’s biggest hit yet; the Korean import Squid Game.  These shows and movies will ensure that Netflix will still have content of value on it’s platform.  But these programs were made in a flurry of when Netflix seemed to be unstoppable.  As they’ve hit the wall now in subscriber growth, what does that mean for all the projects that they have still in the pipeline, as well as the projects that they might have been interested in.  Already, there seems to be some belt-tightening going on at Netflix, as many projects have suddenly been announced as scrapped or being put on hold.  A lot have cancellations had preceded the news of Netflix subscriber miss, which indicates that Netflix may have been well aware of their precarious position before.  But, now the problem is compounded.  I’ve heard a lot of bad takes related to why Netflix is suddenly vulnerable and beginning to downsize.  Among them is the completely false criticism by anti-SJW critics that Netflix’s commitment to inclusivity and social awareness is at fault for the declining result; trying to work the news into their “get woke, go broke” narrative.  The reason this is false is because the projects getting cancelled are not the ones that are described as “woke;” because those shows are actually popular and well regarded.  What Netflix is especially cutting out of their programming outlook are overly expensive projects that are more about the flashy name recognition than the actual quality of the show.  Think needless cash grabs like the Cowboy Bebop live action remake series which was cancelled fairly quickly once the audience numbers came.  If anything, it’s probably a good thing that Netflix is learning to tighten it’s budgets now and invest more wisely, because what they had been doing in the past had been a bit reckless.

But what needs to be addressed more with regards to Netflix’s future is how they’ll be able to grow with regards to subscriptions.  The fact that this business model was their sole driving source of revenue was always going to be a problem.  Eventually, you run out of new people to sign up for your service.  Even by cracking down on password sharing you can only grow your subscriber base so much.  For a lot of people, the cost to content ratio just isn’t enough to make them jump on board.  So, if Netflix needs to prove it can raise it’s total subscriber base, they may have to resort to that dreaded A-word: advertisements.  Such a move wouldn’t be unusual in the streaming market.  Other platforms like Hulu and Peacock already have ad-supported tiers available to their subscribers.  The one problem that Netflix would face from this is loosing their appeal for having add free content.  Putting ads in the middle or at the front of their shows and movies would change a lot of the dynamic of their programming, and some subscribers may see it as selling out.  But, on the other hand, such criticisms would be moot if they still maintained that ad-free tier that currently sits at $15.  There are two benefits to an ad supported tier.  It allows potential subscribers another option that might better fit within their budgets.  And, Netflix would have a secondary source of revenue selling space to advertisers.  Sure, it would mean that some people would have to get used to annoying ads during their programming, but as we’ve seen, some streamers have managed to make it work for them.  At this point, Netflix really has no other choice.  This is the only way to lower the rate of subscription for them without having it cut into revenue, which will help reinvigorate investor confidence.  But, no doubt about it, Netflix will be a much different company as a result.  The question is, how soon will Netflix begin rolling out this option to the public.  We’ll likely see add supported Netflix tiers before the year is over, and maybe even much sooner.  But, Netflix more than anything, wants their audience to have access to the content they make while at the same time maximizing the benefits to them.  And there certainly will be a lot of people out there who won’t mind enduring a couple adds if it means being able to access Netflix content as a more reasonable price.

But, what does the recent struggles for Netflix mean for every other streaming platform out there.  Does the sudden stop in growth raise concerns for the other streamers as well, as they try to also rapidly grow their base.  One thing that has really changed the game recently is the increase in competition.  With more than one player in town, that means that there are multiple choices to chose with regards to what people want to sign up for.  And in most cases, some of those platforms are going to be passed over in favor of others.  That’s likely another reason for Netflix sudden subscriber loss; because audiences favored subscribing to another streamer over them.  The cost piles up the more streamers you subscribe to, and for many, the choices are tough.  This is true for all of them, beyond just Netflix.  That’s why the competition is fierce over all the content being created and all the talent that is being drawn in.  Every one of the streaming platforms needs to make their case to become part of the maybe 2 or 3 streaming channels that the average consumer signs up for.  And this is even in a market where YouTube also exist for free, making the competition for attention even greater.  The entire streaming market is in a balancing act of justifying billions of dollars worth of investment in high profile projects, while at the same time keeping the consumer cost justifiable in an increasingly competitive market.  Again, the ones who are best equipped to handle this are companies where the media side is still just a sliver of the company’s overall operation, like Amazon or Apple.  Amazon has spent a billion dollars alone on their upcoming Lord of the Rings series for Prime Video.  In the grand scheme of things, it’s nothing compared to the money they make annually, and if no one ends up watching the show, it’s not going to hurt them in the slightest.  Certainly Amazon would love people to watch their shows, but they are not really dependent on people watching them either.  With the other streamers, who solely operate as media companies like Netflix, it is crucial that they make wise choices in what they choose to make and how they wish to present it to their audiences.  And when it’s possible to lose out in being chosen as a chosen platform in any individual customer’s preferences, the choices made have to be much more carefully thought out.

So, for right now, Netflix is at a crossroads that a mere year ago was seen as improbable.  They have taken a beating at the stock market and consumer confidence in them has been broken for the first time.  Are they doomed to continue that spiral downward or are they going to be able to pick themselves up again.  My money is honestly on the latter, because some may forget, they’ve been in this boat before.  Back in the early part of the 2010’s, Netflix suddenly raised their subscription rate after they decided to split their services into two separate categories, each with their own subscription rate.  One was for their original disc rental through the mail service that first put Netflix on the map, and the other was for the brand new streaming service they just launched, with a third bundle tier to do both.  People thought that Netflix then had shot themselves in the foot by splitting the services like they did, but what we soon realized was that Netflix was actually looking to the future with streaming.  And they were right, as most people abandoned the rental service and chose the streaming service instead, creating a boom for Netflix for this cutting edge platform that they were very much the forerunners for.  Over the next decade, they continued to ride that wave, and forced Hollywood to confirm in response.  But, Hollywood has indeed caught up, and Netflix now must look at the options they have in front of them in order to find that special spark again.  It’s going to be hard, because when they embraced streaming in the first place, they were filling a void that hadn’t existed before in entertainment.  Now, that revolutionary action has become the industry standard, and they are no longer the market mover that they once were.  At this point, Netflix may even need to resort to following the other streamers lead and adopt ad-support as a part of their business model.  It obviously will be a big blow to the esteem they had as the trendsetter in a changing Hollywood.  But, as long as they continue to make movies and shows that people love, continue to make smart bets and refrain from costly gambles, and reinforce their esteem as a quality brand that cares just as much about the artists as it does about the product, they will continue to prosper.  Netflix made streaming what it is, and their days are far from numbered.