Netflix’s biggest problem is the one it doesn’t know how to fix

There’s not a single person paying attention to what’s happening in the home entertainment market that was surprised by this, but Wall Street apparently employs… no such individual? It’s either that or we all stood witness to an amazing display of hypocrisy: Netflix’s stock plummeted by as much as 27% right after its latest earnings call for the first quarter of 2022. The company had just announced that not only did it not add around 2.5 million subscribers since January — as was its own and Wall Street’s expectation — but it actually lost 200.000 customers globally in the same timeframe. The last time Netflix lost subscribers was all the way back in 2011 — and the company expects to lose 2 million more by the end of June.

No matter how Netflix or anyone else tries to spin it, though, the truth is that this was a long time coming. The company claims it expected a loss of subscribers in the US and Canada, where it recently raised its subscription costs, but it definitely did not expect 600.000 of them to cancel. The same happened in every market around the world apart from Asia. Netflix brought up the matter of account sharing as a big problem for the first time ever — the company has been silent about it for more than a decade — but this did not seem to impact its growth in the past at all. It ever referred to the war in Ukraine as a factor affecting its business, which might be true but is the kind of circumstance that has no place in the greater picture. Which is this: Netflix is in deep trouble and has been for some time.

The elephant in the room, of course, is the real problem behind it all — the one that Netflix did not accept responsibility for: the service just doesn’t offer the kind of value it once did. Τhe one it became known for. What the company did instead, for the last five years or so, was this: it kept raising the cost of its subscription tiers while it was losing most of the decent content in its library — the content it was licensing from Hollywood and other studios, which is fast returning to their own streaming services — all the while producing an awful lot of poor quality content very few people would pay for. This was a recipe for disaster, practically a ticking bomb — and, by the look of things, Netflix is now unable to diffuse it.

Or is it? The company announced it will make some moves that should help. It is now officially planning, for instance, the introduction of an ad-supported subscription tier of lower cost (just as Disney Plus will be doing later in the year) for people not minding commercials but very much minding the pricing of even the lowest Netflix tier available nowadays. It also strongly suggested that it will be taking steps to somehow address the problem of the 100 million consumers who enjoy Netflix’s content without paying for it (via the infamous account sharing practice). It’s already experimenting with changes on that front on a small scale, but everyone now expects these changes to be implemented worldwide sooner rather than later.

These are all steps in the right direction, yes, but they will not solve Netflix’s biggest problem: its low-quality library of content. The company has offered a number of very good TV shows and documentaries over the years, but its track record of producing good movies is abysmal while interesting content for children leaves a lot to be desired. Examining Netflix’s output on a yearly basis it’s plain to see that only a tiny fraction of the countless films and shows it produces manages to attract mainstream interest. The vast majority of the content on offer is forgettable, often unwatchable, pedestrian, produced-by-the-numbers material. Worst of all: long-time subscribers are now very much aware of the fact that it’s not the long catalog of new movies and shows added every month that truly matters. It’s the two or three pieces of new content they actually look forward to watching, that does — but this is not exactly good value anymore, is it?

It used to be that analysts of the entertainment market — yours truly included — thought that, having exceeded 200 million active subscriptions worldwide, Netflix had practically reached the “too big to fail” threshold. That, even if most consumers would not pay for more than two subscription services for their entertainment, those two would be e.g. “Disney Plus and Netflix” or “HBO Max and Netflix”, in the sense that Netflix would be the default choice. Almost a given. It does not look like that anymore. Not at all. Netflix will have to start making major changes on all fronts, from pricing to content to functionality to everything else in between, if it means to remain the most popular streaming service in the world. Because, right now, “Disney Plus and HBO Max” sounds way more interesting.