Stop me if you’ve heard this before: “Let’s Netflix and chill.”
With a name that somehow also became an action, it’s hard to think of a company more deeply rooted in popular culture than Netflix.
Breaking into the movie rental scene in 1997, the company spent the next ten years scraping under companies like Blockbuster while also positioning itself to be the pioneer of the new frontier: digital media streaming. And as the new frontier eventually became the norm, Netflix went from a struggling enterprise to cultural icon to the undisputed market leader.
The numbers tell a similar story:
In 2006, nine years after Netflix was created, the company finally had a profitable year, generating over $80 million in revenue with a subscriber base of 6.3 million.
Contrast that with 2021, when Netflix generated over $30 billion in revenue with a subscriber base of 209 million.
So, with record-breaking profits and an unparalleled subscriber base, now the question is: where do they go from here?
The obvious answer would be that Netflix could continue sustaining its momentum and perhaps expand to other dimensions of entertainment. It makes the most sense and it’s the easiest to imagine, so it’s hard to say otherwise.
But the truth of the matter is, “saying otherwise” is making more and more sense by the day.
Here’s why: Since it decided to shift from a movie-rental service to a digital media platform, Netflix has never come across a company, or companies, that seriously challenged its position as the top streaming service. This is crucial because when Netflix was in the rental industry, they posted negative earnings for nine straight years as they were competing against Blockbuster, Showtime, Hollywood Video and other established companies.
That’s why — after transitioning into a completely new frontier — Netflix was able to learn and grow in an ecosystem where there was no serious opposition. Combining this with the high-growth nature of digital media and the acceleration of technology in our lives, Netflix capitalized on this opportunity to grow into one of the most powerful companies in the world.
But over the past few years, Netflix has seen an increase in competition like never before. Top companies like Amazon, Disney, Apple and more have seen the lucrative profits that were, and still are, generated within the digital media industry. So, they decided to introduce their own versions of Netflix: Prime Video, AppleTV and Disney+, among others.
And while Netflix is still the most popular streaming service, the once large margins have been getting much smaller.
According to eMarketer, Netflix had 44.4% of the United States’ over-the-top television industry's revenue in 2019. In 2020, that number went down to 36.2%. And by 2022, its share was down to 28.4% — almost even with Disney's slice of the U.S. streaming market.
This all accumulated into the shocking news that in 2022, Netflix actually lost subscribers overall for the first time ever. According to Forbes, this led to a 68% drop in the share price of Netflix, making it the worst performing stock of the year. To put that in context, the company started 2022 valued at $267.46 billion and 12 months later was worth half of that, at $131.22 billion.
While many people may not care about concepts like market share or stock performance, they should definitely care about outcomes like increases in subscription price and invasion of privacy.
The worst part isn’t that Netflix lost over $100 billion in one year, it’s that they are going to respond with drastic changes to the platform.
With the horrible financial situation it finds itself in, Netflix is going to shift their focus from the customer to the investor. They are going to prioritize their bottom line at the expense of entertainment and the customer experience. Because, at the end of the day, the company is a business and it is going to be run like one too.
Considering Netflix’s recent actions, this is exactly the case.
Last year, Netflix raised its prices again in the U.S., with one to two dollar increases through all of its plans. Additionally, and more importantly, Netflix announced last week they were going to roll out a crack-down on “password-sharing,” which is when multiple people access and use the same Netflix account. This would force users to create new accounts and subscribe to Netflix, therefore generating more revenue for the company. They planned on implementing this within the U.S. and other countries immediately but were met with consumer backlash.
According to CNET, subscribers were taken aback by these invasive terms: they had to set a designated location to watch Netflix, and the service would track you to ensure you were within said location. Sensing the discontent, Netflix delayed the U.S. roll out while still carrying forward in other places.
These recent actions are not seen as mistakes by Netflix, but instead the start of a strategic pattern. And this pattern would confirm that, to Netflix, cash is more important than the customer.
So ask yourself, as the competition within the industry ramps up and Netflix continues down this path of financial frugality, do you really want to be a part of that?
I answer in the negative, as I value my privacy and know there are better options out there in terms of price, catalog, and more importantly, company values. I grew up watching Netflix, so it was hard for me to let go. But I also know that I deserve better, and so do you.
Jason Li is a sophomore studying Finance, Investment, and Banking at UW-Madison. Do you think Netflix will continue being the go-to streaming service, or is it time to explore other options? Let us know at email@example.com.