I think Netflix's days as the supreme overlord of streaming are numbered.
A week ago, Netflix revealed that it lost quarterly subscribers for the first time in over a decade. This was genuinely shocking to hear. Netflix's business strategy for practically the past decade has been, "Keeping growing top-line revenue and subscriber counts, and the bottom-line will catch up in due time." And during that time period, Wall Street has consistently sent the stock to record highs, an informal stamp of approval on this plan. But after losing 200,000 subscribers in Q1 2022 and predicting to lose another 2 million in Q2 2022, I think it's becoming less and less clear whether both sides of that coin — continued subscriber growth and eventual profits — can live in tandem or if they're diametrically opposed forces. At least on this most recent earnings call, it certainly felt more like the latter.
While strategically I would put Netflix third only to Apple and Amazon in its ability to make all the right pivots at all the right times throughout its history, I think Reed Hastings would openly admit that a big factor in this success was that they always had either incompetent or nonexistent competitors. Netflix could sort of remain on cruise control at the front of the industry because nobody was really trying to pass them up.
But that isn't the case anymore. From Disney+ to Prime Video to Discovery+ and Hulu, the streaming industry has gone from a competition desert to a thriving rainforest of players, and a few of these entrants will soon drown. Netflix will not be one of these early deaths; it is far too established to let any of these newer products drain its customer base that quickly. But I think one immediate impact this has had is that Netflix's content halo has gotten far less bright. Whether it's Ted Lasso on Apple TV+ or The Marvelous Mrs. Maisel on Prime Video or The Mandalorian on Disney+, consumers are realizing there are more places than just Netflix to seek out great content. Netflix no longer has a monopoly on the year's hottest TV shows.
Once this content halo is lost, the next obvious thing to compete on is value, or entertainment per dollar. And this is where I think the unequivocal bull case for Netflix falls apart. A standard Netflix subscription is $15.49/month, still a pretty remarkable deal considering the content library you get access to. But then you have the Disney Bundle of Hulu, Disney+, and ESPN+ starting at $13.99/month for the ad-supported tier. While nothing has been announced yet, I think it's only a matter of time before the newly formed Warner Bros. Discovery puts HBO, Discovery+, and CNN content into one bundle as well. And I certainly don't think we've seen the end of Netflix price hikes. It just appears to me that Netflix is going to continue looking like a worse and worse deal as time goes on, particularly as more established media companies begin doubling down on their streaming offerings. Even if Netflix can likely sustain its platform purely off people who don't think twice about renewing their subscription every month regardless of price, the national economic downturn and Netflix's reported upcoming crackdown on password sharing could cause many people to reevaluate their subscription choices, and Netflix seems to be getting increasingly susceptible to harm during these reevaluations.
The streaming world today isn't what it was five years ago. Netflix still has the most power, but it definitely doesn't have the most momentum, and given the factors outlined above, I'm not sure it will ever get that momentum back.
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