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Netflix is officially in trouble, can it turn this around?

Netflix is officially in trouble, can it turn this around?

Things will get worse before they get better, here’s a battle plan that makes sense
Netflix has accomplished much during the last decade, but it built a very tall tower on shaky foundations. The company will now have to deal with that fact — and do it under pressure. (Thibault Penin, Unsplash)

You just know that a company is in hot water — and definitely not where it wants everyone else to think it is — when its internal plans are not aligned with its public claims. Τhat seems to be the situation with Netflix right now: after announcing that its service has actually lost 200.000 subscribers when it expected to gain 2.5 million new ones (making Wall Street extremely nervous in the process), Netflix confirmed that it plans to double down on the account sharing problem on a global scale “at some point” and even admitted that it will be looking at offering an ad-supported tier “in 2023”.

Well, guess what. According to an internal memo sent to the company’s employees yesterday — leaked to various outlets since — all that is now happening during the next few months. No vague timeframes anymore: Netflix will have implemented these radical changes by the end of 2022.

A risky plan not entirely successful, past choices demanding a price

A dramatically accelerated timeline is almost never a good sign in any kind of business and, in the context of major changes, it can only mean one thing: desperation. Netflix somehow — well, based on its data most probably, but we do not have access to those — now knows that it is indeed in trouble as it has simply gone too far on a number of levels.

Netflix found out the hard way that Hollywood retains its power over consumers, producing content they really care about and now offering it through streaming services. It was not rocket science, Reed. (Image: Disney)

One: it has raised the cost of its subscription tiers to a breaking point, practically losing the edge of a “value for money” service it used to have in the past. Two: it has produced too much low-quality (and definitely not enough high-quality) content of its own, while clearly overpaying for both. Three: it seems to have gravely underestimated competition coming from Hollywood’s “Big Six”. Not only do Disney Plus, HBO Max, Paramount Plus, Bravia CORE and Peacock offer truly compelling content, but they are also rapidly taking away noteworthy content from Netflix’s library (the movies and shows those studios licensed to Netflix) to include in their own libraries for years now.

All of the above can be traced back to decisions spanning the better part of a decade. Reed Hastings and his lieutenants chose to play a dangerous game of haphazard marketing, risky financials and arrogant content production in the hopes that Netflix would reach that mythical “too big to fail” point: a point at which no threat would be able to seriously hurt the service’s market position. They admittedly came close, but there is no such thing as “too big to fail” in the tech sector or the show business. Not really. So now Netflix executives feel the shaky foundations of their creation tremble and new, tougher choices have to be made.

Turning things around takes what Netflix does not have: time

It’s obvious that a service boasting more than 220 million subscribers is not going away anytime soon: Netflix will still be a force to be reckoned with for years to come. But the days of spectacular growth and careless spending are clearly over and what the service should strive to accomplish now is to retain as much of that vast customer base as it can while correcting as many past mistakes as possible. Not an easy task.

Netflix will now have to focus on high-quality productions such as Arcane in order to make its service compelling content-wise. Just producing lots of trash won’t work anymore. (Image: Netflix)

The problem with all of this is that — although it’s been a long time coming — it’s now happening fast and Netflix is a very, very large ship. It will take time to adjust its course away from what is currently mapped out: future financials that are based on recent assumptions, TV shows that are scheduled for years ahead, films that are already deep into pre-production or production. Every important decision that Netflix’s board makes today will not be felt by the service’s userbase for some time — and time is the one thing that Netflix does not have, as losing subscribers and being pressured by the competition only makes things more difficult.

So what can Netflix do in the short-term and mid-term? Well, a few things. It can’t lower the cost of its subscription tiers, for instance, because that would be an admission of defeat, but it can try to offer consumers more benefits for the same amount of money (games may be a good start). It can’t just cancel most of the films or shows it has already invested heavily in, but it can re-evaluate all planned productions and focus on the ones with the best chance of delivering the level of quality Netflix is in dire need of. That might mean that the company’s output will have to be reduced, which could rub long-time Netflix subscribers the wrong way as they are now used to receiving around 30–35 new productions per month (irrespective of quality). But it is a risk that Netflix will now have to take if it means to become a compelling source of entertainment content worth subscribing to.

Some difficult decisions seem to have already been taken at Netflix’s headquarters, obviously: trying to limit the widespread use of shared accounts (or at least making a few bucks out of each…), for instance, is a choice that many analysts are interested to see the results of. Online backlash is inevitable but the overall effect this choice will have on Netflix’s subscription base remains to be seen. The ad-supported tier’s importance could also prove to be crucial: depending on how ads are implemented and how affordable the monthly cost of that tier will be, this could be the single most important change the company will make to its service as an entertainment proposition.

Netflix’s troubles have only just begun. It will take a lot of time and effort to address all of its problems but, in all honesty, it has no other choice. (Souvik Banerjee, Unsplash)

Whatever the case may be, one thing’s for certain: things will get worse before they get better for Netflix and its executives, as well as its customers, should be ready for that. If all this leads to a better service, it will be worth the effort.

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