The Netflix effect

28 Apr 2022

Over the last decade, Netflix has taken the world by storm becoming a household staple. It has even been said that their biggest competition is “SLEEP”. Chilling at home was synonymous with Netflix. The concept is so widely used that there is even an ice cream called “Netflix & Chill’d” (a must-have by the way!)

However, in the past 2 years, the streaming space has welcomed some major new players: the biggest being Amazon Prime, Hulu & Disney+ (the player to give them the biggest blow). Netflix has reported that they have seen a slowdown in subscribers which went down by 200K paid subscribers sending their stock plummeting by 30–40% post the first quarterly of 2022 earning call.

The Netflix impact
As a student I never paid for content, never! I used to always stream content for free. Netflix was my first paid content and I never regretted it for a moment! Paying for my own Netflix subscription felt like a right of passage to adulthood.
Netflix was one the companies that has for long benefited from cheap and negligible borrowing rates to spend on content and took a chance on content creators. Instead of producers / directors getting a shot at one pilot, they had the chance to do a full season! This greatly helped to provide a wide range of content across the board.
Netflix has also truly been shown to be the platform that can revive interest in particular brands and companies:

  • Drive to survive — this series on Formula One has led to global interest into the sport after a series of declines over the previous years.
  • White Hot: The rise and Fall for — showcased the rise and Fall of Abercrombie & Fitch and the recent changes the brand has been doing on its culture — massive brand cleanup was needed!
  • Inside Bill Brain: Decoding Bill Gates — Want to run an effective PR campaign? Your go-to fix is a well-run Netflix limited series.

Some innovation and some reflection moments
Furthermore, Netflix had released an interesting concept with an interactive Black Mirror: a Bandersnatch film where the user is integrated into the story with some marketing hints. Not only do users choose what decisions the character should make but also which cereal the actor should choose in one of the scenes. If you merge that type of information with other data that they have collected, then you get some pretty interesting personas analysis for new shows and new targeting.

In addition to its streaming service, games have also been included on the platform. (Big waste of money, focus and effort to be honest!) In case you didn’t know, open your app and load any of the games and you’ll see for yourself how bad it is.

Content is KING!
Netflix had been benefiting and licensing all the Disney content for a few years. Disney is the master of CONTENT old and new. It has also seen first- hand the impact that great content and smooth experience has on the share price, growth and most importantly diversifying your revenue streams. With one stroke of Magic, Disney stripped Netflix of its content to make room for Disney+ and it’s been on a growth trajectory. Disney+ added 11.8M subscribers in Q4’21 to reach a total of 120M subscribers and more to come.

The current Netflix content is still good and I do enjoy it during downtimes, but there are no series to look forward to, unlike Amazon Prime which is launching Lord of the Rings, or better yet, Disney+ with continuous releases of Marvel series, Star Wars limited series to keep people hooked (cCan’t wait for the Obi-wan Kenobi series to hit!) or even Grey’s Anatomy which never seems to end — there are always natural disasters or terrible accidents happening in Seattle.

Crack-down on Password sharing — Good luck with that! To their benefit, Netflix had 220M paid subscribers. With password sharing, that number can be rounded up to 0.5B users watching and streaming content on the platform — an amazing achievement! Netflix has benefitted from that exposure for the past 15 years to get people hooked and missed out on how competition is going to come swinging. Netflix is going to get flooded with exceptions of people with multiple homes, people that travel a lot, etc. This needs to be done in a manner that doesn’t backfire and lead to more people canceling their subscription. This problem is going to be a major distraction from what it should be doing best which is focusing on great content creation.

The economy’s impact on its model
The inflation argument doesn’t really make too much sense to me. A monthly Netflix subscription is still cheaper than a movie ticket, not to mention saving up on increasing gas prices to go to/from the movie theatre. So if a person is looking to save up on money but limiting his/her number of outings — staying at home means watching something on TV — so a subscription can be easy . With inflation and cost of living on the rise, if people had to choose one streaming content which one would it be? For anyone with kids — no brainer -it’s Disney for the win.
In the release call, Netflix has been talking about introducing an Ad Revenue model but it seems like a knee-jerk reaction to bad results… Youtube for example has moved the opposite direction by introducing Youtube Premium. Moving from “free with ads” to paid is tested but from paid to ads isn’t. The “skip intro” button is one of the best streaming features pioneered by Netflix, so I am not sure how people will react to having to see ads on the platform. It might be able to extract revenue with some targeted marketing based on what we’re watching but that’s never going to solve reducing monthly subscribers.

Always trust a team with a winning mindset
Pivoting the business from DVD to full streaming and leading that transformation is a testimony to the Netflix leadership. The recent attention and competition will be another good challenge for Netflix to take on to grow its user base and regain lost subscribers. One thing is for sure based on their track record, Netflix isn’t afraid of making bold moves. Looking forward to seeing those actions play out.

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