Hi, welcome to another episode of Coldfusion where I cover
anything in science, technology, business or history.
For over a decade, the Netflix brand has been synonymous
with innovation and disruption.
From humble beginnings in the late 90s to almost single
handedly pioneering the contemporary model for digital media consumption, Netflix
has been a success in every sense of the word.
But being the 1st at something means that people are
just going to imitate you.
Over the past decade, the number of streaming platforms has
exploded from 1:00 to over 200, with more coming.
This competition, along with creative choices and growth struggles, has
LED Netflix into dangerous territory.
Netflix's stock price has plummeted by 70% as of the
timing of the production of this episode.
Staff are being let go and hundreds of thousands of
households are unsubscribing, with even more expected to leave in
the coming year.
In this episode, we'll take a look at how Netflix
rose to the top, what went wrong, and what could
be the future.
You are watching Cold Fusion TV.
Netflix was started in 1997 by Mark Randolph and Reed
Hastings.
The story of its origins is pretty interesting.
One day Reed Hastings became annoyed when he got charged
$40 by Blockbuster for returning Avhs tape.
Late being a mathematician, computer scientist and entrepreneur, he believed
he could create a better way.
Later, while Reed was carpooling with Mark, they both were
admiring the success of Amazon.
They discussed their own ideas of shipping items over the
emerging Internet.
They thought that VHS tapes were too fragile and expensive,
so they settled on DVDs, which were brand new at
the time.
After a small test run of shipping DVDs to themselves,
they decided to go for the idea.
And in that moment, Netflix was born, and the company
soon grew quickly.
Interestingly, Netflix approached Blockbuster in 2000 with a $50 million
offer.
Thinking it was a joke, Blockbuster laughed them straight out
of the office.
Blockbuster CEO John Antioco believed that this whole.com thing was
overhyped.
Undeterred, Netflix continued to grow.
Later in 2004, Blockbuster realised their mistake and soon launched
their own DVD rental service.
Unfortunately for Blockbuster, bad management and excessive company debt led
to its demise in 2007.
Netflix pivoted to online streaming as high speed Internet became
more commonplace.
This proved to be the perfect move and things really
took off for the company.
We should remember that in the late 2000s into the
early 20 tens, the streaming platform model for consuming television
and movies at home was considered revolutionary.
And at the forefront of this revolution was Netflix.
With a long head start, they were the first and
only majorly successful platform for streaming TV shows and movies
from a massive range of studios.
There was enough quality content that consumers were happy to
pay for it.
$8 per month for Netflix versus $50.00 a month for
cable was a great deal.
At the time, it truly felt like a new era
of media consumption.
The Netflix model was so successful that it changed consumer
perceptions.
Free to air content with advertising became insufferable.
Bloated paid TV companies that once held a monopoly seemed
outdated in comparison.
Netflix kept growing and wasted no time spreading its wings.
By 2010 it was available in the US, Canada, Latin
America and the Caribbean.
By 2012 it had made its way to the UK
and Australia.
Original content soon followed with extremely well received shows like
2013's Orange is the New Black, House of Cards, Black
Mirror, and later Stranger Things.
It truly cannot be understated just how exciting this time
was for consumers, particularly those outside the US.
Netflix was a slick product unrivaled.
It is quite the success story, especially when you consider
that Blockbuster was once Netflix's main competitor.
Where one company embraced the change and LED a movement
of disruption, the other failed to adapt.
Before long, Blockbuster were bankrupt and Netflix became one of
the most profitable companies on the planet, peeking at a
valuation of $306 billion.
You cannot innovate and be successful for long before others
take note of your idea.
By the late twenty 10s this is exactly what started
to happen.
At first the competition was from similar start-ups, but before
long the mega corporations decided to throw their hat in
the ring.
Over the past few years, corporations would seemingly endless funds
have started rolling out their own streaming services.
For $5.00 a month.
Apple TV Plus focuses on premium content.
Also, for $5.00 a month, NBC Universal's Peacock took many
US sitcoms away from Netflix.
For $15 per month, HBO released HBO Max and blew
critics away with new shows like Succession.
And the biggest of all, the tyrannical IP monster that
is Disney launched their very own Disney Plus, which took
away all the remaining nostalgia from Netflix as well as
adding original content from the Marvel IP and other TV
shows and movies.
It was $12.00 a month for all of that.
For context, a standard Netflix account is now pushing $16.00
per month, making it one of the most expensive options.
We'll touch on how this is hurting the company later,
but at this point in the story, through all of
this added competition, Netflix was still #1 and was in
store for some big wins.
Thanks to a massive event that was to come out
of China during the early stages of the pandemic, Netflix
enjoyed a massive boost in subscribers along with most other
platforms.
Despite its competition, people were stuck at home, and there
was a time when everyone was talking about Tiger King.
Netflix gained 10s of millions of new subscribers over 2020
and into 2021, and they became known as the king
of the stay at home stocks, a category which saw
massive investment.
Even midway through 2021, Netflix was still gaining subscribers, but
this would all change as vaccines rolled out and the
pandemic waned.
Consumers were no longer homebound and Netflix had a problem.
Consumers spent over a year sampling everything that each service
had to offer and now they were well informed to
decide which ones they wanted to keep and which ones
they wanted to get rid of.
The increased quality and quantity of competition, the poaching of
IP from Netflix and a slow down in subscriber growth
could only mean one thing.
There was a reckoning coming for Netflix.
In mid-april 2022, Netflix investors abandoned the company in mass.
This was after it was revealed that the service had
lost 200,000 subscribers globally in the last quarter and expected
to lose 1,000,000 more in the next.
The original estimate was actually growth of 2.5 million.
This was the first time in a decade that Netflix
had lost more subscribers than it had gained in 1/4.
The news was a shock and immediately caused the stock
value to drop by 35%.
Fifty billion U.S.
dollars of value was wiped out from the firm's valuation.
Overnight, scared investors had began to question, Has Netflix peaked?
In a letter to shareholders, the billionaire says, quote While
Netflix's business is fundamentally simple to understand, in light of
recent events, we have lost confidence in our ability to
predict the company's future prospects with a sufficient degree of
certainty.
When you put his name onto a stock like that,
a lot of people likely followed him right down to
the drain.
In total, by the end of April 2022, Netflix had
lost over 70% of its value since its peak.
Some Netflix investors are furious.
In fact, some shareholders are so unhappy that they filed
a lawsuit against the streaming company.
They claim that Netflix's management misled them on the financial
outlook of the company.
Netflix has placed the blame for subscriber loss on several
reasons.
They cited increased competition, people returning to work, the company
pulling out of Russia, and password sharing between households, the
latter of which they didn't actually mind in the earlier
days.
Of course, these explanations are absolutely valid contributions, but it's
far from the whole Netflix story.
Netflix cannot simply rely on brand recognition and lazy consumers
sticking with what they know when other platforms are pushing
new boundaries.
There's a lot of content on Netflix, but sifting through
and finding the gems is becoming more of an issue
than it should be.
When Netflix started, its exclusive content was remarkable, but now
it really seems like much less of that is being
produced.
Further to this, it also seems that Netflix uses a
tiring of their favorite new series being cancelled after one
or two seasons, a common occurrence.
Other complaints include an emphasis of late on more politically
infused content, which generally doesn't perform well in any format.
The pricing model of Netflix is also compounding the problem.
Price increases are becoming more frequent.
For instance, a standard Netflix account in 2014 was just
$9 per month, and now it's pushing 16, and this
is increasingly unaffordable to many households.
With inflation and interest rates rising, consumers generally have less
money to spend on entertainment, and Netflix is at the
top of the list of things to trim.
It all boils down to this, Why would consumers pay
more for content that's slowly dipping in quality with shows
that run the risk of being cancelled?
The Netflix HD option is currently the most expensive streaming
service available, and in this market, this just doesn't make
sense anymore.
This is all made worse by the confirmation that the
brand will be rolling out a cheaper alternative with ads.
Ironically, this is turning Netflix into the exact same tired
viewing experience that consumers ran away from in the 1st
place all those years ago.
During an interview with investors last month, Netflix CEO Reed
Hasting confessed he had never wanted an advertising tier for
Netflix.
Quote.
Those who have followed Netflix know that I'm against the
complexity of advertising and a big fan of the simplicity
of subscription.
And he goes on to say that advertising is necessary
for those who want a lower price.
This kind of behaviour screams at frantic concern.
Layoffs have also hit the company.
All of which do not scream a vote of confidence
for Netflix.
So things aren't looking good for Netflix.
Shedding subscribers, seemingly clutching at straws for revenue, raising ideas,
laying off new staff members, and a plummeting stock value
are all terrible signs.
Even the Netflix executives themselves have predicted that the coming
months will be equally as challenging.
So what's next?
Will Netflix adapt and survive, or will another company rise
to become the king of streaming?
Netflix's business was completely replicable, so it's not out of
the question.
But perhaps there's something lurking in the wider picture.
Maybe right now we're in a scenario like the video
game crash of 1983.
We're in for a streaming crash.
Maybe there's just too many choices spreading consumers too thin,
creating a market that's saturated and can't be sustained, as
seen in the last episode.
With the catastrophic failure of CNN's streaming platform, we could
be in the midst of a mini streaming bubble at
the moment and just not know it.
Ultimately, we have to wait and see what happens.
In saying all of this, there's a high chance that
Netflix has simply just had its time in the sun.
It's reached its peak of profitability and any new changes
to increase it will result in more subscribers shedding.
Whatever the case is, it's going to take some time
to play out.
Maybe in the far future, in an ironic twist, we
might be talking about Netflix in the same vein as
Blockbuster.
By the way, in my podcast called Through the Web,
I talked about how I thought the magnitude of the
stock crash of Netflix wasn't overreaction.
If you want to hear my deeper thoughts about this
and all things take in business, head on over to
the podcast.
I post weekly and there's been some great feedback from
some of you guys, so thanks for that.
Link will be in the description.
Anyway, that's about it from me.
My name is Dagogo and you've been watching Cold Fusion
and I'll see you again soon for the next episode,
which will probably be on the $28 billion lunar coin
collapse.
All right, Cheers, guys.
Have a good one.
Cold fusion.
It's new thinking.