Staff writer Romilly Spaul discusses Netflix’s questionable business strategies and the saturation of streaming content.
Ironically, the business strategy Netflix devised to entice new subscribers is the very thing that is deterring them. Netflix has been part of popular culture for many years now, but in the last few months there’s been a noticeable uptick in interest. And it hasn’t exactly been positive for the streaming service.
Over the last few years, Netflix has become infamous for cancelling its own shows. Sounds rather counterproductive, doesn’t it? The fact is that Netflix has implemented a practice of clipping a show’s wings before it can leave the nest. According to DECIDER, twenty-seven Netflix Original productions have been cancelled just since July 2021, nineteen of which ran for only one season. As for the other eight, they at least managed to finish a second season before getting canned. The knowledge of this phenomenon entered public opinion some time ago now, but the debate is heating up again amidst new streaming services entering the competition, news of Netflix policies cracking down on password sharing, and the emergence of Netflix “super-shows”.
These super-shows are flagship projects that Netflix invests the highest amount of money and advertising effort into. For example, “Stranger Things 4” cost $30 million per episode as per Wall Street Journal’s count, and was split into two parts in order to roll out separate promotional tours. The most recent example is “Wednesday”, starring Jenna Ortega. Watched for 1.2 billion hours within 50 days of release, CNET ranks “Wednesday” just above “Dahmer”, and below “Stranger Things 4” and “Squid Game” as the third most watched series on Netflix.
Netflix has entered a new era of widely-acclaimed, ridiculously profitable shows that leave the rest of its content in the dust. The massively successful blockbuster series, and the cancelling of less successful shows, is thus not a recent development. It’s clear to see the correlation between how many shows Netflix cancels and how many it releases every year. In 2018, Variety reported that 240 Netflix originals were released and 12 shows were cancelled. Accordingly, 398 were released in 2022 according to Ampere Analysis’ data, and 19 cancelled, working out to around a 5% “mortality” rate. A considerable increase in cancelled shows occurred from 2019 to 2020 (12 to 24) but that can be largely written off as a consequence of the pandemic.
So, does Netflix simply get a bad rap for cancelling shows? Some have claimed Netflix disproportionately cancels shows with people of colour and/or LGBTQ+ leads whilst others argue that Netflix fails to promote some of their shows effectively. Netflix simply argues that it cancels shows with the lowest viewership. The difficulty of verifying this is that Netflix is notoriously close-lipped about the viewership rates of their shows, and compiles all their ‘most-watched’ lists internally. It would not surprise me if the favour of Netflix was proportionately linked to the revenue generated by a show, and therefore its viewership.
And herein lies the problem. Netflix’s strategy is ruthlessly focused on increased profit, year after year. This has created a peculiar problem: Netflix is too successful. After experiencing massive growth in subscribers from roughly the first financial quarter of 2017 to the first quarter of 2020 according to Statista’s data, Netflix has reached stagnation. At 223 million subscribers as of the third quarter of 2022, there just aren’t that many consumers left to reach – the market is saturated. At this point, if you wanted Netflix, you would already have it, and if you don’t want it, you probably never will.
Somehow, Netflix co-CEO Ted Sarandos believes ads will solve this problem, judging by his interview with Deadline. Introduced in late 2022, “Netflix Basic” is a slightly cheaper subscription which includes ads. This is meant to attract consumers unwilling to pay £2 a month more for the privilege of no ads. As Netflix’s profit comes almost entirely from subscription fees, the company is far more interested in drawing new subscribers than creating TV series with complete arcs or artistic integrity.
The business model differs from traditional television in valuing the number of consumers rather than the hours of consumption (and thus advertising exposure). Netflix don’t care how much you watch, just that you pay each and every month but this may be challenged by the introduction of the ad-subsidised tier. Former Co-CEO Reed Hastings (who has since resigned) claimed in an interview with Insider that launching multiple shows creates a “cumulative effect” which “triggers you to finally sign up for Netflix”. Even in 2017, when this quote was given, signing up for Netflix was viewed as being late to the party. But the party may be nearly over.
Netflix’s recent attempted password-sharing crackdown has garnered the company significant criticism, with many users – including my own mother – declaring they will cancel their subscriptions if Netflix goes ahead with the suggested policy. This is was in reaction to the widespread rumour that Netflix would prohibit password sharing between two or more users not living under the same roof. If Netflix continues to pursue this, as the forecast in their January 2023 shareholders’ letter suggests, university students will be among the greatly affected, as most of us are studying away from home, and unwilling to foot the subscription bill that their parents already paid.
It is clear Netflix is increasingly pursuing new avenues of profit to replace the lack of subscriber growth. You might wonder, why does Netflix need to maintain this rate of profit expansion? Isn’t it enough to have over 200 million subscribers paying in money every month? And the answer to that is no, which is why Netflix was the worst performing stock of 2022 on the S&P 500. The stock market deplores stagnation, even if you’re stagnating at 200 million. Does cancelling shows get subscribers? Also no, but after a season (or possibly two, if they’re lucky) to gauge popularity and revenue produced, if a show does not meet Netflix’s standards, it is cancelled in order to free up budget that will hopefully be spent on the next multi-million-dollar franchise.
So, is Netflix doomed? I don’t believe so.
To retain or even increase subscribers, Netflix must focus on improving the quality of their original shows. Netflix’s current method of quality control seems to be releasing a glut of shows each year and culling those that allegedly don’t meet their profit margins. The issue with this is that the very practice of releasing a deluge of shows every year leads to both Netflix being unable to promote each new project effectively, thus contributing to lower viewership, and creates a culture of disinterest around Netflix’s releases. Oh, there’s a new Netflix Original? Wait ‘til next week, there’ll be ten more.
Instead, the company must improve the quality of their shows by focusing on just that: quality, not quantity. Netflix is no longer the only streaming service with congregated content from a variety of sources. Increasingly, the only way Netflix will be able to differentiate itself is by its original content, which is currently known for being cancelled at the drop of a hat. As Disney+, Paramount+, HBO Max and more take their content out of Netflix’s reach, the company must realise that originals will make up the bulk of the appeal for Netflix, and act accordingly.