Is Netflix on the verge of collapse or, at the very least, in serious financial trouble?
Netflix, the once championed leviathan in entertainment, has finally lost American subscribers for the first time in eight years. How many? Merely just hundreds of thousands of them.
To curtail this burgeoning problem, the veteran streaming service myopically shifted its focus toward producing original programming to retain its subscribers.
Impressively, Netflix swiftly followed with several strong releases such as the dark comedy Dead to Me and the critically acclaimed When They See Us.
Unfortunately, despite releasing a number of remarkable content that racked in tens of millions of viewers, Netflix’s strategy for concentrating on original content is faltering.
After the media service company terribly missed its forecast on added subscribers in Q2 2019, the NFLX stock is reported to have currently spiraled down by 15% in the market.
As you may have guessed, that’s not ideal — even if this has happened before.
Yes, it may seem irresistible to proclaim Netflix’s doom after every misstep (see: Netflix’s Qwikster Debacle), but this just feels different.
A closing window
As a consequence of burning more money at the proverbial fire, Netflix has reported an annual negative free cash flow of $3-4 billion.
In its vain effort to acquire more subscribers, Netflix has accrued a debt of $15 billion with no end in sight.
To make matters worse, the competitive pressure is just ramping up.
The additions of streaming services from competitors such as Apple, NBCUniversal, WarnerMedia, and, of course, the corporate world conquistador in Disney will all be sure to further loosen Netflix’s grip over its own subscriber base.
Netflix, with all its years of progressive momentum, has suddenly hit a wall. In an almost sobering fashion, Netflix’s domestic dominance is vulnerable to its biggest competitors in Amazon and Hulu. How did it come to this?
The golden age of netflix is over
When Netflix started on-demand streaming in 2011, it revolutionized the TV industry as we knew it.
Indeed, nothing was as close to alluring than the possibility of instantly binging thousands of shows and movies at about 20% the cost of most cable packages.
On the other hand, having the freedom to binge entire seasons of shows without the inconvenience of advertisements was truly innovative in its time.
In fact, when the streaming titan initiated its own foray into original video content in 2013, it even threatened Hollywood itself with its disproportionate chokehold in digital storytelling and the acquisition of talent.
Even just a few years ago, the company chief executive, Reed Hastings, heartily joked that Netflix’s biggest competitor was sleep.
My, how times have changed. You hate to see it.
Today, Netflix is indubitably at an inflection point. After a half-decade of nearly unchecked sovereignty in the premium video streaming sphere that allowed it to, “aggressively poach entertainment’s top executives and A-list talent,” the company now finds itself under siege.
Begun, the streaming wars has…
In the Q2 2019 letter to shareholders, Netflix stressed that the company’s slowed growth was not affected by its competitors but by its recent price hike.
Yet, a new wave of competitors will soon encircle a suddenly mortal Netflix.
In November, Disney is launching the Disney+ streaming service that is bundled along with Hulu and ESPN+. This enticing package is expected to directly compete with Netflix’s standard price at $12.99.
Moreover, Netflix has previously announced that powerhouse mainstays like The Office and Friends will soon be leaving the streaming service.
If that wasn’t enough, these popular money-makers are heading straight back to Netflix’s competitors. Ouch.
By mercilessly pulling Netflix’s beloved — and licensed — shows, major TV networks are therefore fragmenting the content Netflix can ultimately offer to consumers.
With a gradually increasing subscription fee, it will only be harder for the streaming service to continue justifying its premium cost to subscribers.
a brewing storm
In a mad dash to stop the bleeding, Netflix has not-so-subtly gone out to recruit big-name producers and talent — which may either be really brilliant or just another major flop.
Still, this striking move is described by some as almost “desperate,” especially since Netflix’s current plan for producing original content has not met expectations so far.
To abate the coming tide, Netflix claims that the loss of licensed content will free up resources for making more in-house hits. Yet, the company is too over-reliant on the credit market for their own good.
To simply explain:
(1) Wall Street is very fond of Netflix.
(2) Still, as Netflix’s original content plan continues to accrue debt, Wall Street’s patience will eventually wear thin.
(3) If and when Wall Street pulls back its support for Netflix, the company’s access to affordable credit will be restricted.
(4) This would inevitably lead Netflix to conjure less funding for original content, enabling Netflix’s stock to fall farther and further limiting its access to cheap credit.
Thus, as you can see, this reliance on the credit market indeed poses one of the greatest risks regarding Netflix’s current plans for the company’s growth.
What’s next For Netflix
As previously mentioned, a shift away from licensed content is in order for Netflix to keep afloat and stay competitive.
Indeed, producing spectacular originals like Stranger Things and Mindhunter is the key to Netflix’s survival.
In fact, Netflix is slated to spend $15 billion on original content this year alone, which would keep drawing subscribers to its service.
Netflix is also releasing a new feature that actively tracks upcoming releases, which would enable Netflix subscribers to think twice about canceling their subscriptions.
The downfall of Netflix, therefore, will not be attributed to its competitors but by its own decision-making.
As a result, it is imperative that Netflix maintains its brand proposition in being ad-free.
By keeping Netflix ad-free and inexpensive, the company can look forward to keeping the majority of its subscribers loyal to the streaming platform; else, it risks further alienating its base of subscribers.
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A Newfound hope
Netflix, one of the greatest pioneers in entertainment (they transformed the industry a whopping three times), will most likely endure.
In fact, they have been counting on the competition heating up for years.
Its own executives have even claimed that the saturation of streaming options will benefit the entire industry by driving out more consumers from linear TV.
In preparation, Netflix is scheduled to employ its massive headstart in subscriptions and original programming to branch out further into international markets.
Netflix’s troubles, it seems, appears to be solely domestic in nature.
Be that as it may, these are indeed uncertain times for the world’s leading internet entertainment service. It remains to be seen if Netflix will keep its dominance over the US streaming market.
On the other hand, if Netflix were to continue to struggle, there is always the last resort that the company will slowly lose its overpriced valuation over the years.
Ideally, Netflix would be eventually bought out by a larger competitor like Disney.
Ultimately, perhaps the biggest loser will be us, the consumer. Still, out of all the parties involved, Netflix surely has the most to lose.
Where do you think Netflix’s future is headed? Will Blockbuster finally have its revenge? If you enjoyed this post, be sure to give a like!