Netflix: The Disruptor Gets Disrupted
Netflix, who famously originated the concept of “binge watching” by releasing an entire season of episodes for a show on a specific date, is trying something different. In May, they released only five episodes of its popular “Stranger Things” series, holding back two episodes for five weeks after they released the first batch.
This strategy is a significant departure from Netflix’s historical modus operandi as the company added the phrase “binge-watching” to the entertainment lexicon more than a decade ago. Hailed by screenwriters, directors and producers, the binge-watching concept enabled viewers to follow detailed storylines and critical characters in a manner that wasn’t simply possible in the traditional one-episode-per-week model. Storytelling took on a fluidity-like characteristic if a viewer was willing to invest the time. Netflix’s original content instantly became addictive and exhilarating.
Much to Netflix’s chagrin, the novelty of binge-watching might be wearing off with views, mainly due to the overflow of compelling video content from competitors such as Hulu, Amazon Prime Video, Apple TV+ and Paramount+. After all, a differentiator loses its impact when competitors appear to jointly decide that the binge model is dated and “old school.”
Unlike HBO, Disney+ and Hulu (as well as others), Netflix continues to release all episodic content for a series at a single point in time. While binge-watching cannot (by itself) rationalize Netflix’s enormous success over the past ten years, it did transform Tinseltown and injected adrenalin into television’s takeover of the movie business. It’s not an understatement that Netflix’s impact on the entertainment industry has been as profound as the introduction of sound in movies in the late 1920s and other technological achievements.
Part of Netflix’s recent problems, particularly its hemorrhaging of subscribers, may be related to corporate pride that makes it difficult for the company to change course. Netflix has always been an advertising-free content delivery service. In contrast, much of the streaming market has embraced ad-related business models that allow viewers to watch content for free or for a modest monthly fee. While it’s hard to fathom that Netflix will suffer the fate of Polaroid or Kodak, two companies that were seemingly disrupted in real-time when digital photography came of age, it is an open question whether Netflix can innovate itself out of its current dilemma.
To be clear, the faint sound of a canary can be detected in Netflix’s coalmine. But it’s too early to hit the panic button. Even with the company’s loss of 200,000 subscribers reported earlier in the year, Netflix still has more than 220 million worldwide subscribers, a staggering figure that every other streaming company would kill to have. Netflix execs maintain that the company is not planning enormous changes to the binge model, presumably because the company’s internal data indicates that binge-watching is still a more profitable model than moving to a pure ad-supported strategy.
The significant problems with the binge model are churn, economics and viewer anticipation. Netflix’s current model allows viewers to watch an entire season of their favorite show and cancel their subscription at any time. The economics of the Netflix model is also challenging as it requires sustainable high-quality content that can be extremely expensive to finance and produce yearly. Finally, the binge-watching models forego the viewer anticipation effect that a weekly release model enjoys.
While its hybrid strategy with “Stranger Things” may simply be a vehicle for Netflix to perform internal market testing, Netflix’s current subscriber malaise situation may also be a consequence of a few other self-inflicted wounds, including distinctively unpopular price increases that roiled subscribers for the same content, as well as an explicit mandate to clamp down on viewers who share their subscriptions with others. Vox reports that Netflix subscribers are significantly more likely to cancel their subscription service in the first 30 days than any of its major competitors. This metric must truly anger Netflix execs has enjoyed significant industry recognition for its content over the past several years. In fact, Netflix recently received 105 nominations for the upcoming 2022 Emmy Awards, second only to HBO, which led with 140.
In fairness, it would be premature to pass judgment on Netflix until the company unveils its business model changes. The company is contemplating some type of supported offering later this year, and Netflix’s data appears to indicate that the company’s hold on subscribers is slipping. Netflix continues to enjoy a diverse arsenal of programming content, but the competitive environment is vastly different than in 2012. How Netflix’s competitors react to its new rumored ad-supported offering will be equally interesting to observe. There are also rumors that Netflix may add live events to its enormous stable of content, which could be disruptive depending on how compelling that live content is (e.g., NFL games). Nevertheless, Netflix may very well have its future determined due to the crucial decisions it must make later this year.
Mark Vena is the CEO and Principal Analyst at SmartTech Research based in Silicon Valley. As a technology industry veteran for over 25 years, Mark covers many consumer tech topics, including PCs, smartphones, smart home, connected health, security, PC and console gaming, and streaming entertainment solutions. Mark has held senior marketing and business leadership positions at Compaq, Dell, Alienware, Synaptics, Sling Media and Neato Robotics. Mark has appeared on CNBC, NBC News, ABC News, Business Today, The Discovery Channel and other media outlets. Mark’s analysis and commentary have appeared on Forbes.com and other well-known business news and research sites. His comments about the consumer tech space have repeatedly appeared in The Wall Street Journal, The New York Times, USA Today, TechNewsWorld and other news publications.
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