Netfix
Fixing Netflix with less (and more) flix
Netflix has a problem. Well, a few of them, all of a sudden, all at once, it seems. But actually it’s not all of a sudden. The writing has been on the wall for each of them for quite some time. For example, nearly two years ago, I outlined why I thought the move towards decidedly mediocre content was going to hurt them in the long run once competition picked up. And here we are.
Password sharing was one of those good-to-have problems in the earlier days — the service was so good that everyone wanted access — but it was always going to switch into a bad-to-have problem. And here we are.
Aside from maybe Zoom and Peloton, it’s hard to think of a company that likely benefitted (in a silver-lining way, of course) more than Netflix from the pandemic lockdowns. But there’s a cost to such growth — that is: slowing growth and even churn in the future. And here we are.
Finally, the macro picture. Hard to account for that, except that this is what Netflix should have been doing the past two years during the crazy growth. Recognizing they were simply pulling forward users by several quarters, and using that money and investor confidence to charge after what’s next.
And here we are.
Netflix has been signaling for a while now that gaming is what’s next. I remain skeptical in the short term. I think it’s one of those things that seems obvious on the surface, but quite complex just below it. While movies and television and games are all hits-driven businesses, the mechanics of what makes a great game is not the same, obviously. They have good people working on it, it seems. And they’re buying up companies left and right. But the core issue here is that the user base isn’t going to be the exact same. And it’s extremely hard to move from your core wheelhouse into another one, even if you consider it to be adjacent.
Said another way: people don’t come to Netflix for gaming. And asking them to muddles the entire picture. Now, perhaps they see it more as both churn reduction and potentially a way to leverage (or create) IP. But if that’s the case, they should have started with different, easier markets, in my opinion. Podcasts are an obvious one. Audiobooks probably make sense as well. Make Netflix the destination for stories. For any and all types of content you wish to subscribe to.
To that end, maybe you even buy subscription content services like Medium (which also owns a book service called Glose),¹ or even Substack. If you want to pipe in new potential IP, this is the way.
Games can be stories too, of course. One suspects the success of The Witcher adaptation is at least at a high level behind some of this move. But the kind Netflix is starting with are more mindless fun. It makes sense, those games are “easier” to make. But they’re also totally different than what Netflix does. While they may be simple, they’re still a lean-forward experience. Anyway, I would have done games later. But here we are.
And where we are is Netflix looking like they’re a bit shellshocked by their first user decline in basically forever. And the subsequent stock pluuuuuunge. But this was always inevitable. It’s the Facebook problem, in a way. No, not disinformation, but market saturation. Facebook is also in decline in a few markets now because they ran out of human beings to sign up to Facebook. Netflix is operating at a different scale, but it’s still reasonable to think that in many markets they’ve also run out of human beings to sign up for Netflix. This is why growth has largely been overseas in recent quarters. And why much of the content focus has shifted in that direction.
Yes, having a lower-priced advertising tier will help.² But really, like the pandemic pull-forward above, it needs to be a way to buy time for what’s next. Netflix has always been a company very good at knowing what’s next — well, Qwikster aside — and the market has rewarded that. But you can’t help but feel that the current version of the service is also the pinnacle of the game plan they instituted years and years ago. I mean, it’s right there in the name: Netflix. The name is what the company does. And while the DVDs-by-mail business was also technically administered through the “Net”, this version, streaming, is the purest form. Instant content! Subversive movie posters!
So they should change the name.
I know, I know, it’s insanely risky. But hear me out. I’ve had good ideas for Netflix in the past! Unlike the Facebook Metamorphosis (for shame), this isn’t about moving away from a tarnished and decaying brand, this is truly about what’s next. Personally, I would keep it simple: Netfix.
As in, the place to get your “fix” of whatever content you want on the internet.³ Sure, the junkie/drug association is perhaps problematic. But again, this isn’t Facebook. Netflix has goodwill with customers. I think they could pull it off. And then they could more easily build up a base of content and services all under one subscription offering.
They’d sort of be running the Amazon Prime bundle in reverse, as I see it. Where as Amazon has Prime Video as a loss-leader/churn-protector, Netflix has their content as king. The other services here would be to keep people around and engaged when their favorite shows are over and they haven’t yet found another one. And yes, potentially funneling new IP up the chain.
Speaking of shows being over, Netflix needs to end the binge model. Well, not fully end it, but augment it. This has also been obvious for a while, but we’re finally seeing the real downside on the business end. Everyone can sign up to watch a hit show then cancel when they rip through it. If content was spread over weeks and months — this isn’t rocket science.⁴ I appreciate that Netflix thinks bingeing is a better user experience, and certainly there’s something to that. But it’s also worse in other ways, as no one is on the same page when it comes to content. So it’s harder to talk about and obsess over shows.
Again, I think there can and should be a hybrid approach here. Perhaps you start with a first season of a new show that is binge-able to get people hooked (to continue my unfortunate drug use metaphor). Then you go episodic once they are in the second season and beyond. Or you release a few episodes at a time, like some of the other streaming services do. But not the full monty. I’ve talked about all these ideas before, for years, but now is the time.
Back to my new Netfix bundle. The company already has hundreds of millions of people paying, with credit cards on file. They should just start to add to the bundle, prove value, and raise prices over time (which they’ve already been doing for years, of course — which is now breaking the bank for some users as the value proposition hasn’t truly changed). And eventually you can work your way to a complex (but massive) market like gaming. But start with lower-hanging fruit. How about Calm? MasterClass? Things like that.
People are getting subscription fatigue across the board, which is part of the problem Netflix is seeing with now some very real competition. So the company should outflank them by things they can’t compete with, or aren’t going to be incentivized to. Make the one killer subscription for the internet. Where you go to get your content fix. Whatever format that may be.⁵
¹ Yes, disclosure here: GV, where I’m a partner, is an investor in Medium. No inside information, of course, I just think it’s an interesting idea…
² But yes, there’s also very real brand risk here.
³ And in some ways, Netflix has done a good job expanding a bit here — namely with comedy and animation content.
⁴ At the same time, there is some level of science to it, clearly. And it works to many degrees, clearly! But I think it’s also blinding Netflix to some subtlety about the content business.
⁵ But also, just make great content that people have to sign up for in order to see what everyone is talking about. Including a focus on movies again — like this, but better. Think: Michael Clayton. The great stuff Hollywood won’t do for theaters anymore. Speaking of theaters, embrace! In new ways! To be clear, Netflix makes a lot of good content, but it’s getting increasingly drowned out by everything else. Less quantity, more quality.
