Co-hosts Robert Meyer Burnett and Mike Bawden talk about the recent beating Netflix took on Wall Street, losing nearly 35% of its value in a single day based on the news that the service is expecting to lose 2.2 million customers in 2022. That’s bad news for Netflix and will result in some major changes at the streamer. But is this a special occurrence or business as usual for streamers now? How do you grow when you hit market saturation?

Netflix’s future deserves a closer look.

by Mike Bawden

News broke yesterday that Netflix reported a $50B loss in stock valuation due to subscriber base shrinkage over the past quarter. The service lost 200,000 subscribers during the first quarter of 2022 (January – March). Blame for the loss was placed on the cancellation of 700,000 Russian accounts when Netflix pulled out of Russia over the war in Ukraine. Outside of Russia, the service had managed to add 500,000 new subscribers during the first quarter.

Along with the news of the subscriber loss in JFM, the service said it expected to lose another 2 million subscribers during this quarter (April – June). Added to the loss of subscribers in the first quarter, this would mean a loss of about the service has lost about 1% of its subscription base in the first six months of 2022. As a result, Netflix’s management team had to lower their revenue projections for the year.

Significantly.

Wall Street doesn’t react favorably to that kind of news and they blew up Netflix’s stock price. Or, more accurately, they put a pin in it and the “value” of a share of stock in Netflix fell significantly in one day of trading.

So, did Netflix lose all that money in one day?

No. What happened was that investors who were already down on the streamer (Netflix had already lost about 40% of its value this year) piled on and drove the share price down another 35%. Since the start of the year, Netflix has lost over 60% of its value.

Share price on the first day of trading (Jan 3) = $597.37
Share price as of the end of the day (April 21) = $218.22

Streaming services had already been having a hard time. And it looks as if it may be a while before they figure out how their business model has changed/is changing and make the appropriate course corrections. But the go-go economic model they had been using: spend more than you take in to produce content that will continue to attract new subscribers and then make it up on the back end, is showing its fundamental flaw. You can’t sustain it and, eventually, the rug will get pulled out from underneath you.

Listen to “Is Netflix’s financial emergency just business as usual? (#012)” on Spreaker.

Netflix has taken its tumble and already started to act in a way that is intended to show investors “they mean business” when it comes to turning things around. They’ve taken the axe to their animation slate and put the word out that every department will have to consider its personnel profile with an eye toward cutting overhead (meaning, primarily, jobs).

The service is now, reportedly, eyeing multiple tiers of subscription, some of which may be ad-supported, in an effort to provide a more affordable alternative.

But look at the facts, there are still over 220 million Netflix subscribers paying their subscriptions. Responding within 48 hours to a huge loss of stock valuation with plans for clamping down on password sharing, adding ad-supported subscription tier(s), and trimming overhead tells me that Netflix saw this coming. And as bruising as the bad press and panic of the uninformed might be, they’ll get through this and be more efficient (and probably profitable) as a result.

Need to address the real issues

The real issue that all streamers will have to address in the future relates to the cost of producing fresh content for their sites and building portfolios of subscribers who are served the kind of content they want to see. Accomplishing this will require a significant cultural change inside companies like Netflix and, even more so, a realization by the creator community that they’ll need to re-think their business model, too.

Let us know what you think streaming services are going to have to do to stay profitable – is it just raising subscription fees or are there alternatives? How will the creator community have to change its mode of operating to deliver fresh content streamers can afford? What will creators have to give up and what will they get in return?

Something’s gotta give and we’re looking for insights from you, Imagination Connoisseurs, to help us divine what the future holds.

You can do that by sending us a letter. Just click here and then send us a message to let us know how we’re doing and what’s on your mind.

We look forward to hearing from you.

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I invite you to listen in on my weekday conversations with my friend and business partner, Robert Meyer Burnett, as we talk about the things we love: great movies, inspiring television programming, nostalgic genre entertainment, and pop culture.

This episode streamed on April 21, 2022.

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