The Netflix Dilemma

In some news circles, it came to note that Netflix lost subscribers for the first time in 10 years, and that their stock value dropped ~20%. In addition, they are looking at cracking down on password sharing (making the plans “household” rather than “family”) and examining a pricing tier supported by ads. These are interesting business aspects of a company that feels obligated to their shareholders to maximize growth and profits.

Streaming has existed since the days of Napster. People wanted content on demand and without commercials. Pirating was simply a necessary hassle to get there. Steam figured this out a long while ago. Netflix read those tea leaves quite well and offered a price-attractive option…

I’m old enough to recall, and have used, Netflix’s mail order system. I was there at the dawn of streaming. The pickings were slim at best, with maybe 4-5 things you’d actually heard of available. Time went on and Netflix dominated the scene with some rather impressive network routing choices to make sure the streaming experience was positive. The catalogue expanded to have more options of both familiar TV favorites and a decent selection of major films. Then they opted to develop their own series (Orange is the New Black), or pick up some stragglers that had niche appeal (Black Mirror). While binge watching was possible before with a DVD set, you could really binge an entire series with a couple clicks.

And then some interesting bits started happening. Series that garnered larger appeal were cancelled within a week of launch, effectively making a season a pilot episode (quick, name me 3 series cancelled on any other streaming service). The user interface simplified the voting process to thumbs up only (a precursor to YouTube’s removal of the downvote I suppose). The prior historical selection was picked up by other streamers – the loss of Friends was very noticeable. New offerings were thinning out, or perhaps becoming more global in appeal. Other streaming services came about and offered objectively great content. Heck, Disney+ was driven almost entirely on the Mandalorian, and The Boys drove a ton of folks to Amazon. The ground shifted subtly over time. Netflix no longer was the only fish in the sea, and the idea of simply gobbling up all the possible content wasn’t really much of a viable strategy.

These changes cost money, and if you’re not able to get more people into the system, then you need to charge existing people more. The average annual price increase has been 5%, over 10 years. It’s still less than $20 a month, which is a fraction of the cost of cable. Yet, it’s also competing for eyeballs and pocket change from a half dozen other streaming services. Which brings us back full circle to the cable days of paying out the nose for the odd chance something good is on.

Netflix is at an interesting crossroad. They are still the pack leader, at least in the global sense. If they veer one way, it gives an easy out for other streamers to follow. Losing subscribers means losing a fair chunk of revenue, let alone shareholder ire. Choices are present to either stem the losses, or find a way to reverse course. Yet Netflix is not operating in the same space they were 10 years ago, or even 5. Netflix doesn’t have a flagship product (Stanger Things may cause a bump, then a drop)… and folks know that they can easily cancel and return if something does show up. They had managed to build a brand loyalty, where consumers had a hope that something new was coming around the corner, or that a series would continue in a little bit if they just stuck around. Years of that was investment has been lost, and I can’t think of any example where that was successfully recovered.

The choice appears to be how best to survive, and nearly all of the options are going to sting.

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