After years of growth, the streaming giant revealed a shock fall in subscribers. But is it really downhill from here?
An era comes to be defined by its major innovations and, sometimes, just a simple company name does the trick: the Ford Motor Company more than a century ago, or Virgin in the 1980s. They are the business ideas that sum up a moment of progress. Of course, somewhat less prophetically, there were also the shorter-lived promises offered by DeLorean or Myspace.
Until last week, all of us were enjoying “the Netflix boom”, mainly because of what the streaming giant represented, rather than for what it actually was. Netflix stood for easy access to culture, for family sharing, and for turning our backs on the shallow commerce of ad breaks. And it quickly became rather an emotional consumer relationship, especially during the dark lockdowns imposed during the pandemic. In isolation, the homebound took solace in The Crown, Stranger Things, Bridgerton, Money Heist, Lupin, Call My Agent! or Squid Game. In fact for 10 years now in the UK, these box-set shows have fed a national conversation that occasionally also intersected with the chatter around the rest of the world.
So when Netflix chief executive Reed Hastings admitted last week that 200,000 subscribers had walked away in the first quarter of the year, with more likely to follow, fans of the service were forced to reassess. As a result of the losses, the company’s share price dropped more than 35% last Wednesday, sliding nearly 8% further the next day. Then billionaire investor Bill Ackman decided to sell his Netflix shares, despite incurring a vast loss, because things were suddenly looking so scary.
For many inside the industry, the alarm call from Netflix was the sign they had been waiting for that, after a vertiginous climb, “peak subscription” had finally been reached. After all, hadn’t music lovers already noticed how complicated their love affair with Spotify had become? The freedom to enjoy their favourite tunes was, it turned out, actually a threat to the livelihoods of the musicians that made them.
Among those who claim to have seen the writing on the wall well before the Netflix announcement are two Swedish entrepreneurs who are banking on a return to a simpler deal. Måns Ulvestam and Karl Rosander, the founders of Acast, the podcast platform, have now created a new ebook and audiobook platform called Sesamy – for which customers will only pay what they want, when they want it, on any device. The Swedes believe the public has seen through the premise of a subscription. In their view, it is not just belt-tightening that has caused Netflix members to leave the fold.
“We are seeing the end of the something now that began with the paywall,” said Ulvestam. “It is not sustainable because it does not work for customers or for creatives any more.”
Like the gyms that rely on users forgetting about their monthly membership payments, the subscription model, according to Sesamy’s creators, verges on being a deception. “We think all these content subscriptions, with their ‘easy on-boarding’ and very tricky cancellation, are almost a fraud,” said Rosander.
But surely Netflix, a place where so many British viewers still go to enjoy their evenings, cannot be facing disaster? After all, even a show with bad reviews such as Anatomy of a Scandal is drawing a lot of viewers, while this weekend the new teen drama Heartstopper has been greeted with critical bouquets and hailed by some as the most important British TV show since It’s a Sin.
Much of the rush to weep over Netflix’s imaginary open grave has been partly motivated by the way the success of the company, which had attracted new subscribers steadily for more than a decade, has been held up as an example to public service broadcasters such as Channel 4 and the BBC. When the culture secretary, Nadine Dorries, said earlier this month that she wanted Channel 4 to be free to compete with Netflix, many programme-makers were quick to point out that the global streamer she so admired had had great difficulty establishing a viable business model.
And Netflix itself has never liked this rivalry. The company line is that Britain’s public service channels are its “creative partners”. To substantiate this, it points to investment in hundreds of hours of content, including popular shows such as The Serpent, Giri/Haji, and Dracula. A show such as The End of the F**king World, first seen exclusively on Channel 4 and then shown by Netflix, reaped renewed popularity when it returned to C4 for a second series.
For those other Netflix sceptics, the cinephiles, news of the drop in subscriptions bore the sweet scent of revenge. Film fans are still smarting at the way the streamer challenged the financial balance of cinema’s theatrical distribution model. Once Netflix started to make its own feature-length products, the Cannes film festival tried to take a stand against it by banning films that had not been given a release in French cinemas. Organisers warned of an existential threat to the big-screen experience.
But now Netflix has become a prominent part of the film ecology, with The Irishman seducing director Martin Scorsese into the streaming world and both The Power of the Dog and Don’t Look Up winning Oscar nominations last month.
Like many a good film hero, Netflix had more humble origins. Long before it dominated the entertainment scene, it was an unassuming DVD delivery service, just as Virgin started out as a record label and Amazon once only wanted to sell books. But in 2012, the same year it launched in Britain, Netflix began to produce its own content, including the compelling Washington political drama House of Cards. Ten years on, the company has 221.64 million subscribers in more than 190 countries.
Any documentary about Netflix’s fortunes, however, could not yet chart a dramatic downward path. For a start, a chunk of its financial instability can be put down to the shutting down of its Russian service following the invasion of Ukraine, and to the fact that most of those in the west who want to join Netflix already have.
British Netflix subscription levels are holding up comparatively well, yet every form of media service is having to think quickly about what subscription overload will mean. And this pondering has become more urgent with the news that the Competition and Markets Authority in Britain is now set to make “subscription traps” illegal.
So perhaps this is all a category error? That’s what some analysts argue, anyway. We have wrongly assumed that Netflix is a tech innovator simply because its extraordinary expansion prompted many media empires to copy it, including Disney, Warner Brothers, NBC and Paramount, to say nothing of Amazon and Apple. But Netflix is not really founded on tech: it is just an entertainment provider that became a production studio – and that is always a very precarious business. As the screenwriter William Goldman famously put it, in showbiz “nobody knows anything”. It simply is not possible for hit to follow hit, even if you spend $55bn on television shows and movies, as Netflix did between 2018 and 2021.
In reaction to the subscriptions slump, Hastings and his team have suggested they will be holding back on their spending, opening their minds to running adverts “in a year or two”, and pushing harder on quality by somehow “taking it up a notch”. (These three key strategies, of course, are also shared by many of the old-style content providers.)
One Twitter wit, Jake Menez (@Jake Menez), met the news that Netflix was now considering launching a cheaper service supported by adverts with the line: “That’s pretty neat. I’d probably give it a snappy name like ‘television’ or maybe ‘cable.’”
For the average household, the company’s change in attitude to the cosy sharing of passwords will come as a bigger shock. Six years ago Hastings said “we love people sharing Netflix”. Now, with an estimated 100 million people using each other’s accounts, the chief executive is not so relaxed.
The truth is that neither consumer markets nor quality entertainment are endlessly expandable. If we all want a supply of good films and television, we have to ensure that it is priced fairly and that the artists are being paid well. Otherwise, as Rosander drily points out, TV culture is in danger of reverting to a Renaissance situation, where only the wealthy can afford the good stuff: “That is why all the paintings back then were of the duke’s wife.”
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