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Can Netflix get its magic back?

·4-min read
The cast of Bridgerton, one of Netflix’s most recent hits (LIAM DANIEL/NETFLIX)
The cast of Bridgerton, one of Netflix’s most recent hits (LIAM DANIEL/NETFLIX)

If Netflix was a Netflix show, now would be its end-of-series cliffhanger: the company which built itself into a culture-shaper, a streaming service with 221 million-plus subscribers in more than 190 countries, suddenly faces a blockbuster-sized problem.

Netflix’s once-rocket fuelled subscriber growth has gone into reverse. Some 200,000 subscribers quit their subscriptions in the first quarter of this year.

Two million more could switch off in the coming months, the company has warned. Its admission of market saturation saw Netflix’s share price sink by more than a third. Billionaire investor Bill Ackman was so put off that he offloaded his stock at a $400 million loss.

The Netflix logo (AP)
The Netflix logo (AP)

How can the Oscar-nominated firm behind smash hits The Crown, Bridgerton, Stranger Things, Squid Game, Call My Agent! and realms more get its mojo back?

“Netflix will survive but the path it takes in order to do so is unclear,” says Cameron Day, managing partner at digital agency Future Platforms. “The problems it’s experiencing are about the streaming sector as a whole — just this week, we have seen CNN Plus shutting down after only one month, as more and more services are competing for a decreasing market share.”

There’s some fire-fighting to be done: where once Netflix’s founder and chief executive Reed Hastings said “we love people sharing Netflix”, the latest wobbly figures have triggered a change of approach. Some 100 million households share their accounts— in the UK at least 27% of Netflix’s 15 million subscribers are sharing their passwords with other households, according to the research firm Digital i — and a crackdown is expected. Ads are on their way too, but will take at least a year to roll out.

“The challenge for Netflix specifically,” Day says, “is how to recapture the newness and innovation it leads the market with, and reduce cost without further significantly taxing its loyal subscriber base.

“Integrating advertising alongside a reduced cost subscription alone won’t fix the longer term issues.”

For London, Netflix’s future affects far more than just our viewing schedules.

The capital’s reputation as a production hub has been rocket-fuelled in recent years by Netflix and its streaming rivals: Netflix alone spent $1 billion making some 60 films and TV shows (including The Crown and Sex Education) in Britain last year. It has struck a deal to double its space at Shepperton Studios and agreed to open a major new production site in Enfield, north London, at the end of last year. It called the UK “one of Netflix’s most important hubs” at the time.

Any cuts to spending could hit some of the capital’s creative production houses hard as they’re already investing expecting the investment boom to continue. Demand for planning consents for film studios in general across London has risen by 45% since 2018, according to research by Knight Frank.

It is already making cuts in some areas: this week staff at Tudum, Netflix’s recently stood up editorial arm, were let go in the US.

But Russ Mould at AJ Bell says Netflix can’t afford to curb its creativity.

“It would be a surprise — and a negative one for investors — if Netflix were to decide to retrench and rein in its content-creation plans,” he says. “The company is locked in a fight for market share with a formidable array of opponents, ranging from AppleTV to Amazon Prime, Disney+ to Sky, Peacock to Britbox and more. To pull back on content production would increase the risk of loss of share to rival services.”

Investors, he points out, are still pricing Netflix for growth. The firm has a market cap of $94 billion, despite its recent stock crash — more than three times this year’s forecast revenues.

“Yes, Netflix could retrench, but the derating of the stock would probably continue, and shareholders, including management, are unlikely to want to see that. It’s also already financially heavily committed to content creation.”

Netflix has content-related liabilities of $7.4 billion on its balance sheet, and another $15.8 billion of content-related liabilities off balance sheet.

“Of those total $22.4 billion in content commitments, $9.9 billion are due this year and another $9.1 billion in between one and three years’ time. Netflix is committed to these costs.”

Netflix CEO Reed Hastings (AFP via Getty Images)
Netflix CEO Reed Hastings (AFP via Getty Images)

Even if Netflix does eventually retreat, consumers’ demand for great shows isn’t going away, and others would fill its content makers’ schedules if they were freed up, according to Jason Kingsley, founder of content maker Rebellion. His gaming-focused studio opened in response to the huge demand for production space when Netflix and rivals began booking studios years in advance.

“As the Netflix engine slows and re-evaluates its position, new players [are] entering the streaming space,” he adds. “There are wider opportunities for those in production, leading to the widening of the talent pool and ways to entertain people.

“Change always brings about opportunities and threats — we’re seeing this play out now with Netflix.”

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