Capitalism is a boxing match. Like boxers, businesses need to be resilient, adaptive and fast. Without these traits, they will be reduced to a pulp by fierce competitors. netflix has been in the ring for two decades. Until recently, they had unprecedented success for most of those years. You may have read that Netflix started losing subscribers and laying off hundreds of staff, but now it looks like things will only get worse for the current subscription video-on-demand (SVOD) juggernaut. ). Although it still boasts a high number of active subscribers, the sudden change in growth and subsequent decisions cannot be ignored as they may signal the beginning of the end for Netflix.
It feels like yesterday when Blockbuster was the king of home entertainment. By far, they were the biggest player in video rentals when Netflix entered the ring in 1997. Inspired by Amazon’s booming online business, Netflix had a trick up its sleeve: 4 DVD rentals from a week mailed to your home for only $15.95. Not the biggest flex but enough splash to shake things up.
The coming years would see young Netflix grow significantly, adding thousands of movies to its library.
In 1999, a severe blow was dealt to Blockbuster when Netflix changed its model, removing return dates and late fees for all DVD rentals. Blockbuster, a known late juicer, generated $800 million in late fees only in 2000. Raised on his own supply and making poor choices, Blockbuster rejected an offer buy Netflix for $50 million the same year.
Then in 2007, Netflix dealt the deathblow with its “Watch Now” online streaming feature. Now people didn’t even have to go to their mailbox to rent videos. They could watch their favorite content on virtually any device, wherever they were. This coincided with the simultaneous release of smartphones with such capabilities. Just a few years later, Blockbuster, the former juggernaut of more than 9,000 stores, 84,000 employees and billions of dollars, collapsed, disappearing entirely except for the sole remaining location in Bend, Illinois. Oregon, who denied them a dignified death.
Netflix succeeded in disrupting the market, changing the way hundreds of millions of people consumed media. Over the years, Netflix has gotten stronger and stronger. They were a seasoned phenom, destined for stardom. They started receiving major Oscar, Emmy and Grammy awards and nominations for their house productions like stranger things, Card castle, and The crown. Shares of Netflix had rocketed from its IPO of $15 per share in 2002 to nearly $700 in November 2021. Coupled with the lockdowns caused by the pandemic, Netflix was on top of the world.
More streaming competitors emerge
Alas, it was only a matter of time before Netflix faced adversity of its own when an old friend came back to haunt them. In 1997, talks arose of selling Netflix to Amazon for a whopping $15 million. Netflix co-founders Reed Hastings and Marc Randolph knew it would only be a matter of time before Amazon created its own SVOD to compete. Instead of selling to Amazon, Netflix chose to compete, which turned out to be a very lucrative option as Netflix has since earned billions.
The ring began to turn into something of a Royal Rumble. Other competitors arose, all from very wealthy parents. Walt Disney’s SVOD, Hulu, entered the ring with a very beautiful free subscription plan as well as a premium plan which allowed early access to the latest TV episodes.
Jeffrey Bezos has finally decided to sink his fangs into the SVOD market, offering Amazon Prime Video – along with another tantalizing deal. Amazon Prime members would have access to the service at no additional cost. Then came everyone else – Disney+, Paramount+, Peacock and the crowd favorite CNN+. Netflix has withstood the competition despite losing licenses for popular shows like Office, Parks and Recreation, and Friendsas their respective parent companies have added them to their own SVOD libraries.
Netflix and politics
Of course, the absolute mess of American politics has also found its way into the SVOD ring. And because they’re only capable of causing derision and anger these days, Netflix has found their decisions to create controversy and strife for themselves. They very sadly kicked a very angry honeycomb. Additionally, they have joined over a thousand other companies in the massive boycott of Russia over the invasion of Ukraine, resulting in the termination of 700,000 Russian memberships.
Netflix’s long-running success has given them considerable influence, and wielding such power inappropriately is a quick way to fail. Even if Netflix were able to completely avoid all politics and remain silent, they would still end up in a catch-22 and still be wrong for not taking action. Netflix is not blind to these growing problems. They said so in a letter to shareholders in April 2022. This prompted the company to announce new measures in an effort to address its slow growth and increase its margins, but it could hurt them instead.
Netflix Crackdowns & Fees
Netflix announced an unpopular crackdown on account/password sharing, the action of multiple people using the same account (pretty much everyone). Not only should you expect to receive an alert that your account is being shared with someone else, Netflix will require you to pay a fee to continue doing so. This comes after Netflix raised the price of its basic, standard and premium plans again in March 2022, up to $20 per month.
The new fees are already being tested in Chile, Costa Rica and Peru, where compliant users can share their accounts with up to two people. This fee is equivalent to $2 to $3. Last month, Netflix co-CEO Ted Sarandos confirmed a new plan that includes ads that will become available in the coming years. His partner, Hastings, was once adamantly against the idea, but with their current issues, he’s come back. Hastings thinks those who can’t afford Netflix’s plans will opt for the low-cost plan with a side of ads.
For now, Netflix can take a few more hits, but when the lockdowns end, so will Netflix subscriptions. Amazon Prime Video, Disney+/Hulu, Paramount+, etc. come from rich backgrounds containing many other valuable assets. Netflix needs to rely on its marketing and original content. A prolonged war of attrition could see Netflix overtaken and even rendered obsolete by these entrenched industry giants. Certainly, whatever the outcome, they do not ultimately affect the consumer. Even if Netflix shut down tomorrow, their huge library would probably exist somewhere on the internet or some other SVOD. However, thousands of Netflix employees could lose their jobs in an already unpredictable and unforgiving market. The owners, on the other hand, could take advantage of a substantial opportunity if they revisit the sale to Disney, Amazon or NBC, but that’s show biz.
Netflix’s next challenge will be on July 19, 2022, for its second quarter earnings report, and the company is estimated to have lost another 2,000,000 memberships.