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Long time readers will know that I have a burr in my hide about Netflix’s business practices. So you might think that I greeted last weeks’ stock tumble with a joyful expression of schadenfreude. You’d be right. As you also know, though, I remain wedded to Netflix via my monthly subscriptions. I can’t quit them. So as happy as I am to be proven right, I also don’t really want them falling on their faces. Not really. I’d rather they improve their business model to better feed my proclivities.

Over the weekend, I picked up the Wall Street Journal where they devoted several pages to the Netflix stock disaster. I read through it and, as I did, I got frustrated not just with Netflix but also with WSJ. And not just them – it seems like everything I’ve read about Netflix’s troubles is missing a key point; a point so obvious that I don’t see how it CAN be missed.

As the anti-woke pundits dance in the streets they sing that Netflix’s collapse is just another sign that pushing the likes of Cuties, Bridgerton, and Dear White People onto an unreceptive audience has provoked a backlash. I don’t think this is it. Or rather, I think this is only a part of it and not the most important part.

What’s missing is all included in that Wall St. Journal article but also entirely ignored.

WSJ writes for investors. Therefore it should not be surprising that the thrust of their business stories are devoted to profit and loss; balancing expenses with revenue. Understandably, perhaps, the article focuses on the expense of the Netflix’s “original content” and the need for expanding revenues to cover it. The problem, from the analysts’ con-call angle, is that revenues began to contract at the same time that costs are growing. So far, so conventional. Towards the end of the article, there is bar graph which illustrates* it. It shows regular and, often, substantial subscriber growth up until the end of 2021. Then Q1 of 2022 is marked by a slight downturn. For Q2, that turns into a route; Netflix projects a loss of 2 million subscribers once the quarter is booked (contrasted with a historic average gain north of 5 million).

What happened in January, 2022? Did Netflix cross some kind of threshold in shitty original programming, or is there a simpler explanation? Such simplicity might be found, buried right in the middle of the lengthy article.

The Journal explains that it is not all bad news. Despite the loss in subscriptions, and in addition to its current cost cutting measures, the company has a strategy to help boost revenue. “As it looks to reign in costs, Netflix is also exploring new ways to boost revenue. In January, the company said it was raising prices in the U.S. and Canada.”

You don’t say.

I recall said announcement from the company a few months back, probably quickly on the heels of the announcement for the business press. Netflix helpfully explained that it was seeking to provide ever better content for me but that it found that it needed to charge me more in order to do so. The problem for me is that I’ve grown less-and-less enamored with that original content even as the company has aggressively expanded said same offering. I’d much prefer that they keep my subscription price down and simply ease-off on the more expensive exclusive shows a bit (the likes of The Queen’s Gambit and Stranger Things Season 1 notwithstanding).

Isn’t it possible that people began to drift away from Netflix when told the price was going up? Does it make sense that when that price jump actually hit, the drift turned into a rush? Might it not be harder to recruit new subscribers when they see that the price they are going to be charged is higher than the price folks have paid for years?

Gosh, you’d think so, wouldn’t you? Yet, I’ve not seen anywhere the price hike and the subscriber loss linked together. Consider this blog an exclusive, folks!

The Journal article has been helpful to me in other ways. They talk quite a bit about the Netflix business model and shed some light on practices that have left me scratching my head over the years. It also provides details on the love-hate relationship between Netflix, the big production companies, and the up-and-comer streaming services that would like to steal Netflix’s lunch.

I was surprised at the alacrity with which the Netflix executives will cut off a poorly-performing property. In terms of killing funding to a floundering project, this makes sense – you don’t throw good money after bad. In terms of de-platforming a series or a film that is already bought and paid for, that makes less sense. This attitude is particularly disruptive for the Netflix culture which had, originally, promised a hands-off approach when dealing with creative decision making. They are now very much hands-on and their fists fly very quickly when something underperforms.

The Journal also explains that much of Netflix’s algorithmic effort focuses on the less-frequent users of the service. These customers, a company executive explains, are “the most in danger of cancelling their subscription.” This explains some of the oddities I’ve seen, such as being asked to finish a movie that I’ve started or having certain kinds of content pushed upon me. Yes, the customer who pays for the service without actually watching anything is the cheapest of customers but the customer who doesn’t watch anything is apt to quit paying, sooner or later.

Lastly, I see some dark portents when it comes to the future. Netflix will be de-emphasizing musicals and talk shows (good riddence, says I) and will be more cautious with their funding of new content. The golden ring remains that self-produced show that goes on to become a phenomenon (see The Queen’s Gambit or Stranger Things Season 1) and so they’re not going to give up trying to shoot the moon. What they will do is try to direct their funding more efficiently.

The company will be investing more in documentaries and “unscripted fare” (i.e. reality shows), a trend that I’ve already picked up on while scrolling through the interface. They are also toying with a delayed release model for series shows (one episode per week or maybe short bursts), an approach already employed by Amazon Prime. In other words, they are trying to look less like the “watch anything you want whenever you want” service that made them the world-leader and more like a second-rate cable channel from a few years back when many of us decided to cut the cord.

Will I keep paying for that? As we used to say back in the day, stay tuned.

Photo by energepic.com on Pexels.com

*I’d love to link to the graphic but the combination of WSJ paywall, WordPress link displays, and cruel-and-unusual copyright law restrictions suggest I’d be better off leaving this as an exercise for the reader.