Media experts weigh in on the struggling streaming giant.
The growth of streaming platforms and the slow migration of audiences away from traditional television and into the “watch what you want, when you want” model was the primary story of the entertainment industry in the ’10s, and Netflix (NFLX) – Get Netflix, Inc. Report was the main character.
For a while, Netflix seemed like the absolute king of the hill, the name you thought of when it came to the term “streaming service.” But life comes at you fast.
News broke this week that Netflix lost 200,000 global subscribers in the first quarter of the year, “significantly missing the Street consensus forecast of a 2.5 million gain and taking the overall total down to 221.64 million.”
This is the first drop in customers for the service. The company has also said it will lose another 2 million global net paid additions over the three months ending in June, “compared to a consensus market forecast of 2.7 million.”
As a result, the company’s stock price dropped 35%.
So, what happened?
According to experts who closely follow the streaming industry, there’s several factors outside the company’s control, such as inflation forcing customers to cut back, and Netflix having to pull its service in Russia, thus losing 700,000 customers.
But in expert’s opinion, Netflix’s woes come down to two main issues: increased competition in the streaming market, and an outdated content strategy.
Netflix Has a Content Problem
Every streaming platform needs two key ingredients in order to succeed.
It needs to have a robust catalog of material that will keep people watching after they’ve caught up on the latest buzzy hit. So people might sign up to Netflix for “Russian Doll,” or “Inventing Anna,” but they’ll stick around to watch “When Harry Met Sally” and maybe stream a season of “New Girl.”
But more importantly, a streaming site needs buzzworthy hits that attract attention and convince people to subscribe, at least for a month or two, so they can catch up on the latest show that everyone is talking about.
“A robust catalog is important when audiences are deciding between streaming platforms that have similar quality content. That said, if none of the content is culturally relevant, the catalog becomes less critical,” says Tina Mulqueen, CEO at Kindred PR & Founder of Et al. Media.
“Think about how many people downloaded Apple+ so they could engage in conversation around ‘Ted Lasso.’ Engaging in those conversations became more important than a more extensive portfolio that fewer people were talking about.”
For a while, Netflix was the master of the buzzy title that everyone had to check out. But between Apple+’s “Ted Lasso” (AAPL) – Get Apple Inc. Report and Disney+’s (DIS) – Get Walt Disney Company Report world-conquering “The Mandalorian,” other services have learned to play Netflix’s game, arguably even better.
“Netflix had a first-mover advantage and shifted the paradigm for entertainment consumption, but other players have caught up and potentially even surpassed Netflix in quality original content production,” she adds. “We saw this clearly with Apple’s Best Picture win.”
AppleTV+
Netflix Also Has a Catalog Problem
But that said, don’t underestimate the importance of a good catalog.
When Netflix transitioned from a DVD-by-mail company to a streaming service in 2008, it began to develop a mass audience on the back of other company’s content. While Hulu and HBO Go (DISCA) – Get Discovery, Inc. Class A Report were around, Netflix was the main player, so Sony, Warner and Disney licensed their TV shows and films to the streaming service.
Over time, reruns of “The Office” and “Friends” became hugely popular with younger Millennials and Generation Z, and were far more popular on Netflix than any of the channel’s original material.
“A successful streaming network needs to balance consistently producing short-term hits with producing or acquiring content that is in demand year after year, and ensure they build a library of content that has the staying power to keep people coming back to watch when it’s recommended,” says Keith Zubchevich, CEO of Conviva, a continuous measurement analytics platform for streaming media.”
But eventually, the other major film and television studios realized that by licensing their material, they had created a major competitor, and it was just good business sense to build their own streaming services and take back their most popular titles, so “Friends” ended up on HBO Max and “The Office” on Peacock (CCZ) – Get Comcast Corp. Report.
“This put significant pressure on the need for content originally created by Netflix. When they lost so much content they used to syndicate, they had to foot the bill for their content catalog and accept the risk of ‘hit or miss,’” says Zubchevich.
“Having access to proven popular content was a low-risk success (and lots of content already produced rapidly expanded the catalog), whereas original content creation is much higher risk. I think this hurt the brand, catalog and revenue.”
