Netflix and no chill: How the giant's loss of subscribers has shaken up the streaming industry

Many entertainment executives, tired of playing catch-up to a Silicon Valley interloper, have been waiting for the comeuppance of Netflix. But this may not have been the way they hoped it would happen.

Netflix said this week that it lost more subscribers than it signed up in the first three months of the year, reversing a decade of steady growth. The company’s shares nosedived 35 percent Wednesday while it shed about $50 billion in market capitalisation. The pain was shared across the industry as the stock of companies like Disney, Warner Bros Discovery, and Paramount also declined.

Netflix blamed a number of issues, ranging from increased competition to its decision to drop all its subscribers in Russia because of the war in Ukraine. To entertainment executives and analysts, the moment felt decisive in the so-called streaming wars. After years of trying, they may see a chance to gain ground on their giant rival.

More from Entertainment

BREAKING! Arijit Singh announces retirement from singing, singer says 'I am calling it off, it was a wonderful journey' Netflix's 'Idol I' Episode 11 Review: Identity of the killer revealed as the K-drama heads to its finale

But Netflix’s stunning reversal also raised a number of questions that will have to be answered in the coming months as more traditional media companies race toward subscription businesses largely modeled after what Netflix created. Is there such a thing as too many streaming options? How many people are really willing to pay for them? And could this business be less profitable and far less reliable than what the industry has been doing for years?

“They switched from a sound business model to an unsound one,” veteran entertainment executive Barry Diller said Wednesday, referring to many legacy companies that have recently debuted streaming options. “I would guess today they’re saying, ‘Maybe trees don’t grow to the skies.’”

The media industry, worried about declining movie theater ticket sales and broadcast television ratings, has been reshaping itself on the fly to go all-in on streaming and compete with Netflix. Disney has invested billions. Discovery Inc and WarnerMedia completed a merger this month to better compete with streaming behemoths. CNN even introduced a streaming version of itself, which has so far drawn underwhelming interest from subscribers.

But Netflix’s sudden problems show that those investments come with a lot of risk. The streaming market may still be a giant one over the long term, but the next few years could be difficult, said Rich Greenfield, an analyst at LightShed Partners and a longtime streaming booster.

“No matter what, it looks far less profitable, and that’s a problem for everybody,” he said. Fewer subscribers, coupled with increased costs because of fiercer competition to create original content, mean less profit for everyone.

Another concern, some analysts say, is the so-called churn rate. Consumers are growing warier of rising prices for streaming services, and becoming more likely to cancel a service when a favourite show comes to an end, said Kevin Westcott, vice chairman of consulting firm Deloitte. According to Deloitte, 25 percent of US customers have canceled a streaming service only to re-subscribe to it within a year.

“They’re frustrated that they have to have so many subscriptions to get all the content they want,” Westcott said.

Netflix’s issues increase pressure on Disney, which will report subscriber numbers on 11 May. If Disney’s figures fail to live up to expectations, the distress signals surrounding the streaming business will grow louder.

There was also fear among Hollywood talent agents Wednesday that the Netflix gravy train could slow, and that the company’s willingness to pay whatever it took for scripts and talent deals could vanish. The same went for producers. Netflix has spent hundreds of millions of dollars over the past five years in pursuit of Academy Awards. It has yet to nab a best picture Oscar, but its commitment to prestige filmmaking has been praised.

“The effect on us will be if the new reality forces them to cut back on their $17 billion-a-year programming budget,” said Michael Shamberg, whose four-part documentary on the Three Mile Island nuclear plant crisis will debut on Netflix next month. “As a producer, I always think of them as a first stop for pitching original ideas. If their subscriber growth levels off, and it forces them to cut back on programming, will they stop taking risks on innovative TV shows and Oscar films?”

Netflix acknowledged that ferocious competition was partly a reason that growth had stalled. The company used to say its primary competition was not from other streaming services but from diversions like sleep and reading.

Now, there is a question about whether Netflix’s original content is strong enough to set it apart, as even deeper-pocketed companies like Apple and Amazon continue to increase their spending on critically acclaimed shows like _Severance,_ which is carried on Apple TV+, and the upcoming first season of a _Lord of the Rings_ prequel, for which Amazon is said to be spending more than $450 million.

“The reality is with so much alternative content out there, where is the new stuff that is just crushing it? Where are the new franchises?” asked Greenfield, the analyst. He noted that popular shows like Ozark, Stranger Things, and _The Crown_ would soon be ending their runs.

Indeed, interest in Netflix’s vast library has been showing signs of plateauing. “For every single title on the Netflix catalogue, the demand is pretty much flat,” said Alejandro Rojas, vice president of applied analytics at Parrot Analytics, a research firm. “The catalog for HBO Max and Disney+ is growing double digits. That’s a big difference.”

Netflix’s performance could also cause rivals to reconsider their own international expansion plans, potentially making more targeted efforts overseas. Netflix’s subscriptions declined not just in the US and Canada but also in Europe and Latin America.

“Netflix has thrown the kitchen sink at this,” industry analyst Michael Nathanson said. “They were a first mover. They spent a ton on content, and they are making more localised content. They’ve done the right things, and yet they’ve hit a wall.”

Netflix executives, normally self-assured, seemed notably unsteady Tuesday, when the first-quarter results were released. Co-CEO Reed Hastings, who once swore there would never be ads on Netflix, said the company would consider introducing a lower-priced, advertising-supported tier in the next year or two. Netflix also said it would crack down on password sharing, a practice that in the past it said it had no problem with.

“We’ve been thinking about that for a couple of years, but when we were growing fast it wasn’t a high priority to work on,” Hastings said. “And now, we’re working superhard on it.”

Netflix has no advertising sales experience, while rivals like Disney, Warner Bros Discovery, and Paramount have vast advertising infrastructure. And the password crackdown led some analysts to wonder whether Netflix has already reached market saturation in the US.

Hastings tried to reassure everyone that Netflix had been through tough times before and that it would solve its problems. He said the company was now “superfocused” on “getting back into our investors’ good graces.”

John Koblin and Nicole Sperling c.2022 The New York Times Company

Read all the  Latest News,  Trending News,  Cricket News,  Bollywood News,  India News and  Entertainment News here. Follow us on  Facebook,  Twitter and  Instagram.