Updated on July 23, 2022
Netflix has been in the tech news lately, and not for positive reasons. To summarize, last week, Netflix reported that it lost subscribers for the first time in a decade. In its last business quarter, it reported a loss of 200,000 subscribers globally compared to the previous quarter; on top of that, it’s reporting a projected loss of up to two million customers in the next quarter. As far as I can tell, 600,000 of that loss is from the US and Canada; another 700,000 comes from losing business in Russia, after the country’s attack on Ukraine. Despite this, Netflix still has about 222 million customers globally, as the top streaming service by a mile.
Netflix blames several factors for the decline in customers: losing Russian customers; their January price hike; and password sharing. On that last one, Netflix claims up to 100 million households are accessing the service via shared passwords.
All of the above (and a subsequent plummet in its stock value) has led Netflix to announce some changes. For starters, they plan to reduce its spending on children’s animation, including letting multiple people go and canceling an adaption of Jeff Smith’s graphic novel “Bone.” Instead, Netflix is touting DreamWorks’ “Boss Baby” (of all shows) as the desired cartoon model going forward. Netflix is also considering a cheaper ad-based tier, like most of its main rivals. Finally, and receiving the most attention, Netflix plans on cracking down on password sharing; until now, Netflix mostly looked the other way about sharing passwords.
Still, despite the fact that Netflix is the world’s biggest streaming service, all of this raises some questions. Namely, what are Netflix’s current problems? And how does the future look for Netflix? I last looked at such in late 2019 (several months before the pandemic struck), but now’s definitely a time for a new look.
Below is a list of what I think are the main problems Netflix faces.
Wall Street’s unrealistic constant growth expectations
Simply put, constant business growth is unrealistic, despite what Wall Street expects or thinks. Netflix was going to see subscriber numbers halt or decline at some point.
Netflix’s price hikes have made Netflix go from being an inexpensive subscription 10 years ago to the most expensive streaming service in 2022, beating even HBO Max. For that matter, even Netflix’s cheaper $10 tier is a worse buy than HBO Max, or any of its rivals, since it’s only in standard definition (and allows just one user). Fine if this were 2007, or if one only watches Netflix on a mobile device, but otherwise, I view it as unfeasible. Instead of an ad-based tier, Netflix should just bump this tier up to regular HD instead.
Rival services (aka the “streaming wars”)
As the “streaming wars” have shown, a ton of rival services have sprung up over the past five years, going beyond Netflix only worrying about its longtime rivals Hulu and Amazon Prime Video. Along with those, Netflix now has to worry about HBO Max, Paramount+, Apple TV+, Disney+, and a variety of niche services. While cord cutting is still ongoing, “subscription fatigue” is a concern; the average person only has so much money to spend on television.
Still, the problem is all of Netflix’s rivals offer one or more of the following advantages:
- They’re cheaper. Almost all of these services can be had (with or without ads) between $5-$10 a month, versus Netflix’s $15.49. (Again, I don’t consider Netflix’s $10 tier as viable.)
- They offer more features. Paramount+ offers live sports coverage, and the option for streaming your local CBS affiliate. Peacock also offers live sports. Disney+ comes as a bundle with Hulu and ESPN+ for almost the same price as Netflix.
- They have more popular intellectual property (IP)/franchises. HBO Max has the DC Comics superheroes, Looney Tunes, and “The Sopranos.” Paramount+ has “SpongeBob” and “Star Trek.” Disney+ has the Marvel Cinematic Universe and Pixar. Compared to all of those, most of Netflix’s “originals” look less impressive, even if competing with Batman, “Yellowstone,” or “The Mandalorian” is difficult.
Losing material to rivals (Netflix is now less of a “catch-all” service)
Netflix built its business on being a “catch-all” service, going back to the days when it mainly rented DVDs. As such, it relied on third parties for its TV shows and movies. The problem now is that said parties decided to cash in on Netflix’s success and start their own streaming services. And to do so, they’ve been yanking their material from Netflix. Netflix thus is forced to rely more on its own originals, smaller third party producers, and (in the US) material from non-US producers.
This is also part of the reason people are complaining about the boom in streaming services. Instead of buying just Netflix (and maybe also Hulu) and getting almost everything, one now has to buy several other services, all sorted by their respective networks/studios/owners.
Netflix has little else besides streaming to rely on
Netflix relies on streaming as its business… and pretty much only streaming. Its DVD rental side still exists, but it’s a shadow of its former self. They’ve also tried making a stab at mobile games, with few results.
This puts pressure on pricing, content, etc. to a degree its rivals don’t have to worry about. Netflix can’t just raise theme park or broadband prices, rely on TV network ad revenue, or churn out a Batman or “Star Wars” movie and print money. Meanwhile, Disney+, Peacock, and Apple TV+ are ultimately just another business arm for their parent companies. While it’d be a problem if they shut down tomorrow, their parent companies would still respectively own Disneyland, Comcast, and the iPhone for revenue.
Hulu and Amazon Prime Video also face the same problems of no longer being quite the catch-all services they once were. However, since they’re owned by Disney and Amazon (respectively), they’re in less of a tight spot. While Hulu’s future might be debatable, they’re now the home of Disney’s adult-oriented material (“Deadpool,” ABC’s edgier primetime fare, etc.), as well as content (for now) from non-Disney companies. Meanwhile, Prime Video just bought MGM.
Netflix doesn’t have as strong a marketing side as its rivals; its approach to advertising its content (with some exceptions) seems lackluster. While Disney’s probably in a class of its own, the Mouse House knows about the power of marketing. Ditto Paramount, Warner Bros., etc. That includes (for better or worse) merchandising; “Paw Patrol” has plenty of toys, books, clothes, etc. However, I’m hard pressed to think of any Netflix kids’ shows (that weren’t already big franchises, like “Transformers”) with the same degree of merchandise.
Too quick to cancel shows / an overreliance on algorithms
Netflix has taken to canceling its shows fairly quickly. Unfortunately, that doesn’t leave room for shows to slowly build up an audience; instead, if it’s not an instant/massive hit, it’s “game over?”
Not helping is Netflix’s heavy reliance on algorithms to determine its programming. The animated series “Tuca & Bertie” was critically acclaimed, but apparently failed to appeal to Netflix’s opaque algorithms (not appearing in recommendations, etc.), and got canceled. The show’s since moved to Adult Swim. That said, Netflix’s had other issues with its animation side.
Given all of the above, it might leave some with little incentive to try out a new Netflix original show. Why bother getting into a show if it’s likely to be axed in short order?
Netflix does have its positive aspects. The big one being it’s not tied to any existing media conglomerate or tech company. Thus, Netflix is free to make certain movies or TV shows that Disney, Comcast, etc. would never touch, or wouldn’t handle as well. (See “Squid Games,” “BoJack Horseman,” etc.) It also means a somewhat independent media outlet, a concern given media concentration.
Still, that doesn’t change the fact that Netflix has a long list of problems:
- It’s now the most expensive streaming service.
- It’s no longer quite the “catch-all” service it once was, thanks to media companies yanking material to start their own services.
- Lackluster marketing of its TV shows and movies.
- Its rivals are cheaper, offer more features, and/or have more popular properties.
- Netflix relies too much on algorithms, while also quick to cancel TV shows.
- Finally, Netflix has few assets to rely on besides streaming.
I also wonder if Netflix has been a bit complacent, since they’re the “default” streaming service everyone uses. Many of the articles about its January 2022 price hike basically shrugged about the increase, giving now-ironic statements along the lines of “sure nobody likes price hikes, but who’d ever cancel Netflix?”
I don’t believe that Netflix’s 2022 subscriber loss equals “doom,” as others claim. (A two million subscriber loss is still only about 1% of its customer base.) That said, unlike a decade ago, Netflix now has a ton of compelling competition. Thus, without changes, I can see Netflix’s future looking like Facebook’s: still a giant, but dwindling in popularity.