8:00am PT by Tim Goodman
Tim Goodman: A Bad Week Won't Kill Netflix
This might be a good time to pause and breathe if you're at Netflix, have invested in Netflix or you're a competitor eating popcorn and hoping for further damaging and/or irritating news about Netflix.
It's not going down that easily.
Granted, last week wasn't the best of weeks.
Netflix lost domestic subscribers for the first time in roughly eight years and its projections for worldwide subscribers — 5 million — ended up well short at 2.7 million, which, coupled with the domestic losses, sent the stock tumbling and billions into the ether (and even incurring a dark horse lawsuit from an angry investor).
Part of the reason why this was a bad look, of course, is that one of Netflix's current rivals, Hulu, had already cut its basic, ad-supported streaming price from $8 to $6 while Netflix had raised prices on its most popular streaming option from $11 to $13 and — here's the truly worrisome part — four heavyweight streaming competitors, Disney+, Apple+, HBO Max and NBCUniversal have yet to hit the market. Worse, the choice most people will make from those four, Disney+, has already ticketed its subscription price at $7.
The hunt is on.
So yes, on the surface this downturn looks foreboding. Maybe it is. But avoiding the stock market issue — sorry, not an expert on that — and strictly looking at Netflix subscriber history (it had a record first-quarter subscriber increase of 9.6 million and believes it's on track for a strong third) maybe this will end up being a blip. Rivals won't want to hear that, preferring to gleefully grasp at the possibility that the Death Star has a weakness and the crumbling is just beginning. But there are a lot of factors in play that will shape Netflix's fate one way or another. Among them:
1. Is this subscriber issue a blip or an indicator? We're going to know sooner rather than later, but as of now Netflix doesn't seemed concerned.
2. If it turns out that the price increase was partly to blame for domestic losses, will those subscribers shift to Hulu or Disney+ or, looking at the numbers, both? That bears watching and might be a longer-term trend to monitor.
3. Barring a miracle revelation, Disney+ will launch before anyone else, on its stated date of Nov. 12 this year. I've already said I think that's a bigger problem for Apple+ than Netflix, given that there is infinitely more content at Netflix than Apple+ at launch and thus Netflix is the better value, plus is more proved and familiar. Do not discount familiarity and laziness in the Streaming Wars — it's a hugely important factor for people just now trying to figure out how and when they will cut the cable cord and enter the bold new streaming world. While they are working on figuring out how to cut that cord, many already have Netflix. If they didn't drop their subscriptions yet, they might not. That's a much bigger issue for Apple+, HBO Max and NBCUniversal down the road.
4. So, if this was just a temporary but brutal scare for Netflix and it finds firmer ground in the third quarter, what will that mean? Maybe nothing. But there's been some early inkling that Netflix might be more open to ratings transparency (believe that when you see it) and there are rivals who believe how Netflix operates currently as it pertains to originals (what it develops, what it buys, how it promotes those and how they are rolled out) could all change once Disney+, Apple+ and HBO Max are finally and firmly in the game.
That, of course, will be fascinating to see develop, if it does at all. Netflix hasn't had to make hardly any changes to, for lack of a better description, being Netflix, for ages now. One very intriguing but neglected point about how Netflix reacted to this recent subscriber downturn was one of the excuses it rolled out: that content in the second quarter maybe didn't excite people who were looking to subscribe.
Wait, what? Since when did that become part of Netflix's subscription model? That idea — look at our cool new shows! — is arguably a relic from Netflix's infancy when touting stuff like House of Cards and Orange Is the New Black was essential to stand out. In short order, the unstated selling point after that wasn't about specific series so much as having more shows than anyone else and almost everything you could possibly want. The model was volume.
So it was a little odd for Netflix to sound like HBO, as just one example. If, going forward, Netflix thinks the key to adding new subscribers isn't volume — the most bang for your buck — and instead an emphasis on buzzy new releases, well, it would have to completely alter how it's currently doing business (heavy on late review embargoes, not publicizing some series at all, discovering almost by accident — hello Stranger Things season one — that a show is, in fact, buzz-worthy; flooding the field with series, movies, specials, etc. without much regard to promotion).
I don't see that happening, partly because of the promotional expenses involved and partly because it keeps shining that pesky spotlight on provable ratings. This far into Netflix's existence, the subscription model is very clearly volume and has been, second quarter downturn excluded, working pretty damned well. It's likely that blaming less-buzzy titles was just a way to deflect from the panic that a game-changing moment had in fact occurred.
That said, another thing to watch with Netflix is how it markets itself as Disney+ nears orbit entry. Because everybody knows that Disney+ is not shy about showcasing its impressive IP as a sledgehammer. Will this make Netflix start touting titles over its deep bench?
5. If you're of the mind-set that Netflix is being weakened, specifically by the fact that two of its most successful library series — Friends and The Office have been bought back and will be pulled off the service by HBO Max and NBCUniversal, respectively, be very careful with extending that logic. Here's the thing: Did people make those shows insanely popular because they already had Netflix and the shows were just sitting there? Or will The Office, for example, really be a driver to NBCUniversal whenever it rolls out in whatever incarnation it comes up with? There's no doubt that old shows do great on Netflix — it has breathed life into plenty of series that were ignored elsewhere when they premiered. That's the Netflix bump — just ask Schitt's Creek (Emmy nominated now!), You and, going back a bit, even Breaking Bad just how important Netflix is to building an audience.
While Friends and The Office — popular comedies in their original days and repeat-friendly — will be good titles to tout on their new streaming services, it will be very interesting to see what the actual ratings are (if we're ever allowed to) when they're not on a streaming service that everybody already has. Translation: NBCUniversal is not Netflix so how essential will The Office be and was the cost to buy it back worth it? WarnerMedia has a deeper and more valuable vault, so assessing the value of Friends will be tougher because it will mostly be added-value for new subscribers.
6. The point is, underestimate how much of a kingmaker Netflix has been and arguably will continue to be at your own peril. A domestic subscriber downturn prior to big competitors arriving into the market is certainly worrisome, but a momentary stalling out of its worldwide domination plan isn't yet the end-all. Saying that increased competition in the future will severely hurt Netflix is based on an assumption that the free-for-all Wild West that will be coming as people cut the cable cord — and yes, once again, it's coming — will push new subscribers to Apple+, HBO Max and NBCUniveral (after the existing competitors, Hulu and Amazon). But what if a significant portion of those suddenly available streaming subscribers choose Netflix first, or second, even? And why wouldn't they? It may have lost shows from its vault that others own but the vault is still enormous, the service still the most dominant. To automatically assume the next generation of domestic subscriber-free agents, as they were, will end up choosing two or three options before they choose Netflix is not a bet I'd make.
A bad week? Yep. A doomed future? Oh, be careful.