Netflix's best days: Behind or Ahead?

There is probably not a single person on the internet who has not heard of the phrase, “Let’s Netflix and chill.” This seemingly simple phrase is now one of the most uttered phrases and also one of the most favored pastimes of couples all over the world. Netflix as a streaming service has dominated the sphere and rightfully so. Their original shows, their consumer oriented ad free subscription service was revolutionary at that time and still continues to be even today. The pandemic, which was devastating to many industries and sectors all over the world, was a blessing in disguise for streaming platforms like Netflix, Hulu and Amazon Prime. Subscriber counts and profits rose as people could only Netflix and chill as they were barred from leaving home.?

Netflix shares hit an all-time high of $690.31 around the end of 2021. Following that the shares continued to tank. Netflix stock took such a huge beating that as of now the share price is $229 per share. The company losing subscribers for the first time in 25 years being one of the major reasons for the fall.?

It is undeniable that Netflix has greatly influenced today’s youth, but it continues to lose favor and fervor among the populace. Although it is still the most dominant platform, it seems to be losing steam. And the reasons are many.

The entire world shut down due to the recent global pandemic, while this is a cause of celebration for Netflix, the aftershock of the pandemic resulted in the slowdown of various economies. And the recent Suez Canal crisis, and the war in Ukraine have disrupted the global supply chain resulting in high inflation and rise in food prices all over the world. The huge boom in gas prices also resulted in less disposable income for the average consumer. Countries like the USA, which form the major customer base for Netflix have had to bear the brunt of high inflation, which in turn meant that they had less money to spend on subscriptions like Netflix.

While this is a major reason for the loss of subscribers, this isn’t everything. Some of the major strengths of Netflix turned out to be its greatest weaknesses as well. Netflix is known for its ad free subscription model which is an absolute win for the consumer but not so much for the company. This is why subscription costs for Netflix are much higher for the consumer. This cost is simply unaffordable for the rest of the world, which is why the company has partnered with Microsoft to power their first ad powered subscription offering.

Being good Samaritans as they are, many people tend to share a single Netflix account, thereby reducing the number of subscribers drastically. There have also been third party sellers all over the internet selling Netflix accounts at a fraction of the cost.?

Netflix also produces original shows regionally in the local language of particular countries, which makes it difficult for subscribers from other regions to understand and enjoy the shows. Along with widespread piracy of the original shows produced by Netflix, very few people outside the USA prefer to subscribe to Netflix.?

And many of the new original series and movies produced by Netflix by investing hundreds of millions of dollars have not yielded sufficient returns, as such the subscribers who decided to subscribe to Netflix purely because of the original shows canceled their subscription services as well.?

Now Netflix is not the only streaming service in town, it now has its fair share of competitors producing their own original shows and who have also decided to host their own shows on their own platform instead of Netflix. This has resulted in the loss of many fan favorite shows from Netflix.?

Most importantly, such a big company has had its fair share of mistakes and controversies. One of the biggest yet most unspoken mistakes made by Netflix was the movie “Cuties”.? Just with the announcement of the movie, and the release of the trailer, there were widespread protests and petitions to remove Netflix from the USA. Netflix possibly made one of the biggest marketing blunders of the century by marketing the movie as an adult dance movie starring twerking 11 year old kids.?

The trailer garnered 1.8 million dislikes on YouTube and #CancelNetflix was trending on twitter too. There were even petitions to stop the movie from being released.

Netflix then issued a statement of apology on twitter and then proceeded to change the description and poster of the movie. The female director of the movie was interviewed and convinced everyone who was outraged that they were on the same side. The film was originally from France and had even won an award at Sundance. And this meant that people were split into two sides. One side supporting the movie and one side opposing it.?

But after the movie came out, everyone agreed that it was just child exploitation and oversexualisation of children at that point. There was so much footage that did not add anything to the plot of the movie and only served as proof of children being exploited. There was widespread opposition from major right wing politicians and groups in the USA, and this led to a massive boycott of Netflix as well. Another controversy was the Dave Chappelle Comedy special “The Closer” which led to walk outs by the employees of the company.?

Here are a few forces at play. Recently, Netflix had shut down its services in Russia following the Russian Invasion of Ukraine which cost them around 7,00,000 subscribers. This had a considerable impact on the top-line of the company.?

However, if you notice, there is a clear contrast between the share prices and the financial performance of the company (see exhibits). While the share prices have been on decline for sometime now, the financial charts are an all-time high.

Figures in 1000’s USD

?Although the company is able to perform well, it is losing the trust of its share holders it seems. One probable reason may be the perception of the share holders during the pandemic. Most investors thought that Netflix would reach its peak during the pandemic, which is true, and when that happens, the investors would then sell the shares at price as high as USD 700 making huge profits in their portfolio.?

Now the prices are trading at an extreme low of US 200. While it may seem like a good opportunity for the retail investors to buy the shares again, the fear of share prices stagnating still remains.

It might be a good time for the company to consider venturing into a new business aligned with the growth strategy of the company in order to diversify its portfolio and the risks, as it may act as a catalyst needed to regain the trust of the investors.?

But before they do that, it will be a good idea to assess the situation thoroughly especially the impact that the Russian-Ukrainian conflict and pandemic induced inflation have had on the economy as a whole. The U.S. economy has shrunk for a second straight quarter, at an annual rate of 0.9 percent which is a vaguely indicating that the world might be headed for another recession. And during a recession, it is completely normal for the share prices to plunge. There are some evidences to support this argument as Google Inc and Meta Platforms Inc, both are on a similar trajectory when it comes to share prices.

Whatever the case may be, the situation is quite unpredictable at this point. Will Netflix keep its calm and blame it on recession, or will they play a bolder move and diversify the business?

Exhibits: Sourced from Netflix