Netflix has long been considered the king of streaming thanks to its relatively early entry into the streaming market and then taking that momentum to both expand into other regions and developing its own content. But Netflix is finding that its crown may be losing some of its luster.
The History of Netflix
Netflix made its official debut in 1998. Users could go to Netflix’s website and pay $4 plus shipping to borrow a DVD, a media format that was very new at the time. Additional money could be paid to keep the title. The company began offering a subscription plan in September 1999 for $15.95 a month for four discs.
Costs were adding up, and the dot-com bubble was bursting, so the founders of Netflix went to Blockbuster in early 2000. For $50 million, Netflix would essentially run Blockbuster’s online division. Blockbuster declined the offer with executives almost laughing at the proposal.
Netflix marched on but wouldn’t turn a profit until 2003. But then, popularity began to explode.
In 2007, online streaming became available in most of its plans. The company halted sales of DVDs in 2008. Netflix had the idea of spinning off its DVD rental service in 2011 after adding a streaming-only plan the year earlier, but this plan was scrapped. Rental subscriptions continue to this day under the name/website DVD.com.
The company expanded to Canada in 2010, and it continued to debut in other nations since.
In 2012, Netflix’s first original series, Lilyhammer, debuted, but 2013’s House of Cards was the company’s first fully-backed production.
Today, Netflix is available in almost 200 countries and Originals comprise over 40% of Netflix’s catalog.
Now, discussing Netflix’s growth would normally include numbers about how many subscribers it has and how much it’s worth. After all, Blockbuster found it absurd to pay $50 million for Netflix, and one is down to a single store while the other is very much active.
But it’s precisely those numbers which are making headlines recently.
Netflix’s Recent Numbers
In January, Netflix announced it added 8.28 million subscriptions between the months of October to December 2021 for a total of 222 million subscribers. This was a little below below the company’s estimates of adding 8.5 million. As a result, Netflix revised its predictions for the first quarter of 2022 to 2.5 million. Stock prices fell since analysts were expecting over 7 million new memberships for that time period.
Well, the results for Q1 2022 came out, and they were far worse than expected: for the first time in 10 years, Netflix lost subscribers.
On top of that 200,000, Netflix is now predicting that another 2 million to cancel service by June.
Stock prices for Netflix dropped, and about $50 billion in value was wiped out in one night. Netflix’s stock has lost about 63% of its value since the beginning of the year and is now at 2018 prices after setting a record this past November.
As Financial Express put it, “Netflix may soon turn out to be one of the worst-performing shares of 2022 year especially among the top-notch technology stocks.”
In more positive news, the service did experience growth in some regions, notably Asian-Pacific countries like Japan.
What Happened?
So why did people abandon Netflix? Well, there are a variety of factors. 700,000 of those losses came from Russia, as Netflix is one of the many companies who have ceased operations there due to the war.
Netflix was already experiencing slower growth in 2021, which was part of the reason for the price hike.
But raising prices is another cause for people choosing to leave Netflix, as the service now starts at $9.99 a month.
There are also more competitors than ever before, and inflation is hitting record highs.
Netflix also blames much of their problems on password sharing.
All of these factor into Netflix’s current situation, but executives surely have been either downplaying or ignoring been ignoring the warning signs about their business for a while. Sure, at well over 220 million subscribers, that’s still well above Amazon’s approximately 200 million Prime members globally (many of which who may have only little interest in the streaming side of things) and Disney, who have to add Disney+, Hulu, and ESPN+ together to get around that number.
But most people have limited funds, and all people have a limited number of hours a day where they can feasibly watch a show or movie. Netflix with its most popular standard plan is now the most expensive streaming option, and while they continue to lead in the amount of time spent streaming, the other services are delivering their own hyped shows.
Netflix hasn’t been afraid to pay big bucks for its content, like $450 million for sequels to Knives Out.
This The New York Times article discusses ways where Netflix’s focus on content can be a drawback:
“‘Now with entrants like Disney+ and HBO Max sporting their own compelling services, the company may be forced to adopt some of the revenue streams that have made the traditional media companies successful for decades: theatrical distribution, advertising-supported subscription services and perhaps consumer products.
…
Netflix, which was traditionally evaluated as a technology stock, is now starting to get valued as more of a traditional content provider,’ said Jon Christian, a founder of OnPrem, a technology consulting firm specializing in media and entertainment. ‘Yet they don’t have some of the advantages that some of the other major streaming providers have, like theatrical box office and sports programming.”
Netflix’s Next Moves
So how can Netflix turn the tide? Well, with password sharing being a point of contention for the company, they are testing out charging more to share passwords.
In test regions, it costs the equivalent of $2 to $3 a month for up to two profiles for people outside the subscriber’s home, although there are questions about how Netflix is going to determine what is outside the home versus a second place, traveling, etc.
Another idea has been rejected by executives for years, but it seems like that’s going to change in the next year or two: an ad-supported option is coming.
Netflix is also investing more into gaming. For instance, the card game Exploding Kittens is getting a mobile version next month and a series in 2023.
Of course, every analyst — professional and armchair — will have their own opinions on what Netflix has done wrong in recent months and years to cause their subscriber numbers and stock prices to sharply swing downward and what they should do next. I’m sure most people would say lower the price, and anime fans are likely to add stop the live action adaptations.
I personally have been in the camp of suspecting Netflix has been overpaying for content for a while. And unlike most of its competitors, very few would get help in recouping some of their cost through physical media. I would love to see more Netflix productions and acquisitions to hit store shelves.
Another interesting part of the story is how badly Netflix overestimated its Q1 numbers. Obviously, pulling out of Russia was not expected last year, but to go from gaining 2.5 million to losing 200,000 is a huge difference. Netflix has missed its numbers for the past two quarters, and even if they do better than expected in the next quarter, they almost certainly aren’t going to add members if they’re predicting to lose 2 million.
In more news, Netflix is also reportedly severely scaling back its animation department with most of their in-house projects canceled, including the adaptation of the comic book Bone. They cite The Boss Baby series as an example of what they’re aiming for in the future, but that’s not a Netflix production; it’s a Dreamworks show.
It will be interesting if this sort of approach trickles into the anime-verse. After all, it wasn’t that long ago Netflix unveiled its Anime Creators’ Base in Tokyo. Netflix has a lot of anime/anime-adjacent content upcoming like Samurai Rabbit: The Usagi Chronicles and a Terminator anime. But creators have come forth saying Netflix is putting more pressure on making what audiences want rather than innovation and personal creativity — and in some cases, reportedly using cherry-picked or false data to quash projects. Even highly-praised projects were given little attention: City of Ghosts was nominated for a Peabody, and the creator ending up doing her own media hype due to a lack of acknowledgment from Netflix.
I also wonder how the response to password sharing is going to be if Netflix does move forward with charging extra. No one likes to pay more, and if people are already piggybacking off of a friend or relative’s account, are they really going to toss in a couple of bucks just to have their own profile? Not to mention the clamor from people who are inevitably going to get incorrectly flagged for sharing. No system is perfect after all. Plenty of people spend part of a week (or month) at one place and then the rest at another — that seems ripe for errors.
Regardless, I imagine that’s not going to be the only way Netflix is going to try to make up for its lost revenue and value, but of course, any additional fees, removing features, or other perceived negative changes are going to create a loop effect of even further slowing of their growth or even losing subscribers. Whether Netflix can avoid this scenario is yet to come, but the company has now got notice they’re no longer the Pied Piper of Streaming and that whatever they play will lure in viewers. The fact they are finally backtracking on their “no-ad-version” stance is good because it gives viewers even more flexibility, but beyond that, I think Netflix is going to have to come up with better ideas than targeting suspected Netflix piggybackers or closing down their animation studio.