Why is Netflix suddenly so desperate?

Investors were informed Tuesday by Netflix that the streaming giant had lost nearly 1 million subscribers during the second quarter. It also announced plans to accelerate its plans for an ad-supported, cheaper subscription tier. In order to increase revenue and customer satisfaction, Netflix said it would clamp down on account sharing. It’s the latest in a fairly long line of negative news stories about the streaming giant, which have included layoffs and a reported downscaling of production, particularly in animation and in prestige film and TV.

Netflix is suddenly facing financial difficulties despite being at the forefront of the streaming boom. There are a few potential reasons — and Netflix’s position at the vanguard of streaming is one of them.

With 220.6 million subscribers, Netflix’s audience is enormous, and genuinely worldwide. It could be reaching the point where there are few people left who might subscribe to it and haven’t yet — at least in prosperous countries with good internet access. Netflix is the company that was the first one to offer premium streaming video.

Add to this the tough economic conditions at the moment, with energy and fuel costs rising sharply and a recession looming, and it’s easy to understand why Netflix’s seemingly unstoppable growth has gone into reverse. Netflix might represent good value for money as entertainment, but it’s still an inessential monthly cost that’s easy to cut if you’re a family trying to balance its books.

That’s the simple answer, and more or less the explanation that Netflix has been presenting to its investors. Cutting costs, adding a cheaper offering along with a new revenue stream (advertising), forcing moochers to actually pay — these actions all make sense for a company staring down the barrel of hostile market conditions.

Netflix has to deal with a much greater existential risk. And it’s one that gets to the heart of the real-world decision users are making as they hover over the unsubscribe button.

Of course, it won’t have escaped Netflix’s management that the service is facing much tougher competition now. But what the company doesn’t seem to be responding to is how that competition is exposing the weaknesses in Netflix’s actual product: its original films and TV shows.

In terms of sheer audience size, Netflix has only one close competitor — Amazon Prime Video — although the comparison is not quite like for like. Prime Video is estimated to reach about 200 million people, but it is only one benefit of an Amazon Prime subscription, and perhaps not even the most important one — that being guaranteed two-day delivery on most items bought from Amazon. While Prime Video is the only service to reach remotely as many homes as Netflix, it’s something of an outlier, since people might (and probably do) subscribe to Prime for other reasons.

Image courtesy of Netflix

Disney Plus made significant progress in just two and a half years of existence. If you add up the 137.7 millions of customers to Hulu and the 45.6million subscribers, Disney could be argued that Disney already has the same level as Prime Video or Netflix. (Throw in the 22.3 million users of ESPN Plus, and Disney’s streaming subscriber base tops 200 million — although it’s worth noting that the company counts Disney Bundle customers three times.) HBO Max is home to over 75 million customers. Peacock, Apple TV Plus, Paramount Plus and Apple TV Plus all hover around the 30 to 40 million mark. All these services (bar Apple’s) lean heavily on their parent companies’ position at the heart of Hollywood, combining original programming with fresh-from-the-theater movie releases and deep archives.

Many of these services exist now and not many households are financially able to afford them all. Netflix, aside from Amazon Prime (which is a rare exception), has been fighting half a dozen other serious contenders for your right to keep it in your monthly budget. And if it is losing subscribers, it is because it is losing that fight in the place that really matters — exclusive stuff that people want to watch.

This is how the most successful competitors built brands people are comfortable with. It’s not rocket science; it’s show business. Disney Plus provides a vital family utility as well as a place to meet millions of Star Wars and Marvel fans. HBO Max is not limited to franchises such as Game of Thrones or DC, but it also trades on over 100 years of great Warner Bros. movie magic. Casablanca To Dune, plus HBO’s undisputed ownership of quality Sunday night TV drama. Apple, meanwhile, is setting itself up — with some success — as a sort of boutique version of HBO, making up for its lack of a back catalog by spending big on splashy originals with high production values.

Image: Disney Plus via Polygon

This is not to say that Netflix doesn’t make good stuff. Squid Game, Masters of the UniverseAnd The Lost DaughterThese are just three examples of great recent releases. What do these films have in common? What do they have in common? Perhaps even more important, how do they make viewers feel an emotional connection?

Except for the exception of Stranger ThingsNetflix is not able to create a story world with the same staying power as its competitors. Amazon is in the same boat and buying world-famous franchises, such as James Bond and The Lord of the Rings. Netflix’s deals — with Mark Millar, with the estate of Roald Dahl, with Rian Johnson for the Knives out You can try to make it work with sequels Problem Three-Body ProblemIn the sci-fi Game of Thrones — have potential, but are thinking too small and too piecemeal to bring any cohesion to the service’s catalog.

Hollywood production companies have been dining out on Netflix’s hunger for new content for years, but the streamer’s executives have been as fickle as they have been profligate, with itchy trigger fingers, prone to cancel shows before they’ve had a chance to build up a head of steam. While it has funded many great movies by visionary filmmakers such as Jane Campion and Martin Scorsese, its efforts to reach a wider audience for movies have led to a series of weak and aimless stars vehicles that are not only profitable but also generate little conversation and no affection. Bird Box, Red NoticeAnd Gray Man.

Foto by Frank Masi/Netflix

Within Netflix’s commissioning, production, and quality control, something isn’t working as it should. It could be because Netflix is fundamentally an tech company. They measure engagement in clicks, minutes watched, but not in emotive storytelling terms, which even Disney (hi, Disney!) is very familiar with. It’s this attitude that has led to Netflix’s strict adherence to what was once thought to be its great innovation, but now looks like its biggest weakness: binge mode.

Netflix strives to make its viewers stay on its site, which is why it offers complete seasons of its TV shows. These short bursts of content deliver great engagement statistics. However, most streamers either abandoned this model, or have rejected it altogether. They recognize that weekly episodes generate a lot of conversation, which is a great way to get free marketing, and a strong incentive to continue your subscription. Netflix’s biggest rivals now explicitly build their offerings around this almost old-fashioned concept of water-cooler TV: shows like The Boys, Obi-Wan KenobiAll the Marvel and Star Wars series, EuphoriaAnd Ted Lasso. Netflix feels increasingly absent from these conversations, and it’s telling that it chose to have two bites of the cherry with the latest season of Stranger Things.

With its scattershot content and blink-and-you-miss-them binge releases, Netflix is only exacerbating its struggle to keep subscribers’ attention. It is also up against the imminent and overlapping release of The Lord of the Rings – The Rings of Power, House of the Dragon, She-HulkAnd AndorThis will make it even harder to maintain your subscriptions, as well as the long, noisy conversations these shows can generate. Netflix will need to maintain its number one position in streaming and retain its subscribers. 1 streaming service, it will have to think hard about what it’s making and how it’s releasing it — not just how viewers pay for it.