The new cable
"It's become the new cable," Andrew Lawrence writes about Netflix at the Guardian. He is expressing the theory that it's now Netflix's turn to suffer the fate of TV cable packages, which consumers have been cutting in favor of streaming, because, in his view, its content library has become stale, flat, and unprofitable. Ouch.
Lawrence was responding to Netflix's Tuesday evening announcement that the first quarter brought a loss of 200,000 subscribers and a projected second quarter loss of 2 million. About 700,000 of those were sacrificed when the company quit Russia as part of economic sanctions (some Russian subscribers are suing over this.)
Overnight, Netflix's shares dropped by 35%; having peaked at $700.99 on November 17, 2021, Thursday they closed around $218. One hedge fund sold off its 7% stake. Puncturing expectations of an ever-expanding future shrank Netflix's shares to something closer to their real value.
In the US especially, Netflix's trials may signal the beginning of a new industry phase. In Britain Netflix's biggest competitor remains the free-to-air BBC (for which we all must pay), ITV, and Channel 4, all of which commission world-class programming, plus, especially among younger people, YouTube. In the US, veteran screenwriter Ken Levine commented last week, broadcast networks are moving flagship content to their streaming arms. Eventually, he predicted, broadcast networks will "become the equivalent of the old neighborhood cineplex showing first run films a month after they've run everywhere else."
Another maybe-signal: on Thursday, Warner Bros Discovery (following a just-completed merger) announced it will close its month-old streaming platform CNN+ on April 30. At Axios, Sara Fischer reports that as of Tuesday the service had 150,000 subscribers, and that new owner WBD prefers to build HBO Max as a unified service.
I see this as a signal because the underlying question is: how many streaming services can people afford? Most of the cable cord-cutting Lawrence alluded to is for cost/value reasons.
Last week, Mark Sweney reported at the Guardian that due to the cost-of-living crisis the number of UK households that pay for at least one streaming service fell by 215,000 in the first quarter. Many still see Netflix as a "must-have"; first chopped are newer arrivals - Disney+ in particular. Amazon subscribers are also more likely to stay, perhaps because of Prime delivery. We'd guess also that the removal of pandemic restrictions coupled with warmer weather means people are going out more, which eats into both available time and entertainment budgets, and resuming commuters are rediscovering being time-stressed and cash-strapped.
Netflix has plans for recovery: it intends to create lower-priced subscription tiers part-subsidized by advertising and to crack down on the 100 million households it believes are sharing passwords instead of buying their own subs. The latter sounds like the next phase of the file-sharing wars; companies' reputations never came out well. In any event, it's unlikely Netflix will ever again see the adoption rates of the last ten years. It can put prices up for its ad-free tiers; it can (and almost certainly will at some point) pay artists less. In 2019, their outlays on talent led monopoly specialist Matt Stoller to call Amazon and Netflix predatory.
In order to build its own library of original content (the stuff Lawrence complained about), Netflix loaded up with as much as $16 billion in debt (at peak), apparently successfully. In January 2021 it announced an end to further borrowing because its subscriber revenues were now enough to support both operating costs and content investment. However, the company remains vulnerable to interest rate rises, given it still owes $14.5 billion.
At the Guardian, Alex Hern notes that Netflix, unlike competitors Amazon, Apple, and Disney, offers no news or sports, which people *will* pay to consume in real time, but adds that it has a gaming service for subscribers. Based on the complaints I see from subscribers, Netflix could also make its customers happier by improving its interface, particularly to aid content discovery.
The moment of peak streaming was always going to come. It's sooner because of the pandemic; it's later because the traditional broadcasters and media companies took so long to catch up with the technology companies who were the first movers.
For now, content is king, and all these companies hope their exclusive catalogues are sufficiently unique selling points to build their subscriber base. Anyone who was drawn to Netflix by Friends or The Office must now go elsewhere. Making new hits is *hard*. As Jeff Bezos recently learned, you can't make a new Game of Thrones by following a checklist.
Longer-term, the problem they all have is that no one cares about them. But we do care if every new series requires an extensive search and a new subscription. Even given apps like JustWatch, which find the best-priced option, piracy's single interface is far easier.
At a guess, there are three main future possibilities: the streaming services can consolidate, partner into something like cable packages, or open up content licensing and compete on pricing, features, absence of ads, interface design, and technical quality. Whatever its competitors do, Netflix's wild growth phase is over.
Illustrations: Lily Tomlin and Jane Fonda in the Netflix series Grace and Frankie.
net.wars does not accept guest posts, and does not accept payment, even in kind, to include links or "share resources". Wendy M. Grossman is the 2013 winner of the Enigma Award. Her Web site has an extensive archive of her books, articles, and music, and an archive of earlier columns in this series. Stories about the border wars between cyberspace and real life are posted occasionally during the week at the net.wars Pinboard - or follow on Twitter.