The Rise and Fall of Netflix (Investors Are Suing)
Summary
TLDRThis Cold Fusion episode explores Netflix's journey from its 1997 inception to becoming a streaming giant. It details how competition, content choices, and growth struggles have led to a 70% stock price drop and mass subscriber loss. The episode examines Netflix's rise, challenges, and the potential future in a saturated streaming market.
Takeaways
- 📈 Netflix's stock price has plummeted by 70%, reflecting significant financial challenges.
- 🎥 The streaming market has become highly competitive with over 200 platforms, up from just 1 a decade ago.
- 🚀 Netflix was founded in 1997 by Mark Randolph and Reed Hastings, starting as a DVD rental service.
- 🌐 Netflix's pivot to online streaming in 2007 was a pivotal move that propelled its growth.
- 🏆 Original content like 'Orange Is the New Black' and 'Stranger Things' helped Netflix stand out.
- 💸 The entry of major corporations into the streaming market has intensified competition for Netflix.
- 📉 Netflix lost 200,000 subscribers in Q1 2022, the first time it has lost subscribers in over a decade.
- 📊 The company's market valuation dropped by $50 billion overnight after the subscriber loss was announced.
- 📊 Netflix's pricing has increased over the years, making it one of the more expensive streaming options.
- 🔒 Netflix is considering introducing an ad-supported tier, a move that contradicts its previous stance against ads.
- 🤔 There are concerns about a potential 'streaming crash' due to market saturation and too many choices for consumers.
Q & A
What was the initial business model of Netflix?
-Netflix initially started as a DVD rental service by mail, moving away from the late fees model of Blockbuster.
Why did Netflix move into online streaming?
-Netflix pivoted to online streaming in 2007 as high-speed internet became more commonplace, which proved to be a successful move for the company.
What was the reaction of Blockbuster when Netflix approached them with an acquisition offer?
-Blockbuster laughed off Netflix's $50 million acquisition offer in 2000, thinking it was a joke.
What was the impact of the COVID-19 pandemic on Netflix's subscriber base?
-During the early stages of the pandemic, Netflix enjoyed a massive boost in subscribers as people were stuck at home.
What factors have contributed to Netflix's recent subscriber loss?
-Increased competition, people returning to work, pulling out of Russia, and password sharing have been cited by Netflix as reasons for subscriber loss.
How has the competition in the streaming market affected Netflix?
-The competition in the streaming market has led to a slowdown in subscriber growth and a loss of subscribers for Netflix.
What was the reaction of the stock market to Netflix's subscriber loss announcement in April 2022?
-The stock market reacted negatively, causing Netflix's stock value to drop by 35 percent and wiping out $50 billion in value overnight.
What is Netflix's strategy to address the issue of subscriber loss?
-Netflix is considering a cheaper, ad-supported tier and is looking to improve its content offerings to address subscriber loss.
Why did Netflix's CEO, Reed Hastings, express reluctance about introducing an advertising tier?
-Reed Hastings has historically been against the complexity of advertising and favored the simplicity of a subscription model.
What are some of the criticisms consumers have about Netflix's content strategy?
-Consumers have criticized Netflix for cancelling popular series after one or two seasons and for an increasing emphasis on politically infused content.
How has Netflix's pricing strategy evolved over the years, and what impact has it had?
-Netflix's pricing has increased over the years, with a standard account going from $9 per month in 2014 to nearly $16, which has become less affordable for many households.
Outlines
📺 Netflix's Rise and Current Challenges
This paragraph discusses Netflix's journey from its founding in 1997 by Reed Hastings and Marc Randolph to becoming a pioneer in digital media consumption. It highlights how Netflix disrupted the traditional video rental model and grew rapidly. The script also outlines the emergence of competition with over 200 streaming platforms, leading to a significant drop in Netflix's stock price, staff layoffs, and a decline in subscribers. The origins of Netflix are explored, including its innovative approach to DVD rentals and its strategic shift to online streaming in 2007. The paragraph also notes Netflix's initial dominance in the streaming market and its expansion into original content production, which was highly successful and contributed to its popularity.
📉 Netflix's Decline and Market Saturation
The second paragraph details the increasing competition Netflix faced from other streaming services like Apple TV+, Peacock, HBO Max, and Disney+. It discusses how the entry of these competitors, offering a variety of content at different price points, affected Netflix's market position. The paragraph also covers Netflix's subscriber growth during the pandemic and the subsequent decline as people returned to normal activities and had more choices. It mentions the company's first-ever loss of subscribers in a quarter, which led to a significant drop in stock value. The reasons cited by Netflix for this loss include increased competition, people returning to work, withdrawal from Russia, and password sharing. The paragraph also touches on consumer dissatisfaction with Netflix's content quality, cancellation of popular series, and frequent price increases.
🚨 Netflix's Future: Adapt or Decline
The final paragraph speculates on Netflix's future, considering the possibility of a 'streaming crash' due to market saturation and too many choices for consumers. It discusses Netflix's decision to introduce an ad-supported tier, which contradicts the company's previous stance on simplicity and subscription models. The paragraph also mentions layoffs at Netflix and the uncertainty about the company's ability to adapt and survive. It draws a parallel between Netflix's situation and the video game crash of 1983, suggesting that the streaming industry might be facing a similar crisis. The speaker, Digogo, invites listeners to his podcast for a deeper discussion on Netflix's stock crash and other tech and business topics.
Mindmap
Keywords
💡Innovation
💡Disruption
💡Streaming Platforms
💡Stock Price
💡Unsubscribing
💡Original Content
💡Competition
💡Pivoting
💡IP (Intellectual Property)
💡Market Saturation
💡Ad-Supported Tier
Highlights
Netflix's brand has been synonymous with innovation and disruption.
Netflix pioneered the contemporary model for digital media consumption.
The number of streaming platforms has exploded from 1 to over 200.
Netflix's stock price has plummeted by 70%.
Netflix was started in 1997 by Mark Randolph and Reed Hastings.
Netflix's origin story began with a late fee from Blockbuster.
Netflix initially focused on DVD rentals due to the fragility and cost of VHS tapes.
Netflix approached Blockbuster in 2000 with a $50 million offer, which was rejected.
Netflix pivoted to online streaming in 2007 as high-speed internet became more commonplace.
Netflix's subscription model was a game-changer, offering a cheaper alternative to cable.
Netflix expanded globally, becoming available in multiple regions by 2012.
Original content like 'Orange Is the New Black' and 'House of Cards' were extremely well received.
The competition from mega corporations like Apple TV+ and Disney+ started to affect Netflix.
Netflix gained tens of millions of new subscribers during the early stages of the pandemic.
In mid-April 2022, Netflix lost 200,000 subscribers globally, leading to a significant stock value drop.
Netflix's management has been blamed for misleading shareholders on the company's financial outlook.
Netflix's subscriber loss has been attributed to increased competition and other factors.
Critics argue that Netflix's content quality is dipping, and there's a high chance of show cancellations.
Netflix's pricing model is becoming less competitive with price increases and a more expensive service.
Netflix is considering a cheaper alternative with ads, contradicting its previous stance against advertising.
Netflix has seen layoffs and a plummeting stock value, indicating potential instability.
There's speculation about a potential 'streaming crash' due to market saturation.
The future of Netflix remains uncertain, with the possibility of it reaching its peak and declining.
Transcripts
hi welcome to another episode of cold
fusion where i cover anything in science
technology business or history
for over a decade the netflix brand has
been synonymous with innovation and
disruption from humble beginnings in the
late 90s to almost single-handedly
pioneering the contemporary model for
digital media consumption
netflix has been a success in every
sense of the word
but being the first at something means
that people are just going to imitate
you over the past decade the number of
streaming platforms has exploded from 1
to over 200 with more coming
this competition along with creative
choices and growth struggles has led
netflix into dangerous territory
netflix's stock price has plummeted by
70 as of the timing of the production of
this episode
staff are being let go and hundreds of
thousands of households are
unsubscribing with even more expected to
leave in the coming year
in this episode we'll take a look at how
netflix rose to the top what went wrong
and what could be the future
you are watching cold fusion tv
[Music]
netflix was started in 1997 by mark
randolph and reed hastings the story of
its origins is pretty interesting
one day reid hastings became annoyed
when he got charged 40 by blockbuster
for returning a vhs tape late being a
mathematician computer scientist and
entrepreneur he believed he could create
a better way
later while reed was carpooling with
mark they both were admiring the success
of amazon they discussed their own ideas
of shipping items over the emerging
internet
they thought that vhs tapes were too
fragile and expensive so they settled on
dvds which were brand new at the time
after a small test run of shipping dvds
to themselves they decided to go for the
idea and in that moment netflix was born
and the company soon grew quickly
interestingly netflix approached
blockbuster in 2000 with a 50 million
offer thinking it was a joke blockbuster
laughed them straight out of the office
blockbuster ceo john antioco believed
that this whole dot-com thing was
overhyped
undeterred netflix continued to grow
later in 2004 blockbuster realized their
mistake and soon launched their own dvd
rental service
unfortunately for blockbuster bad
management and excessive company debt
led to its demise
in 2007 netflix pivoted to online
streaming as high-speed internet became
more commonplace this proved to be the
perfect move and things really took off
for the company
we should remember that in the late
2000s into the early 2010s the streaming
platform model for consuming television
and movies at home was considered
revolutionary and at the forefront of
this revolution was netflix
with a long head start they were the
first and only majorly successful
platform for streaming tv shows and
movies from a massive range of studios
there was enough quality content that
consumers were happy to pay for it eight
dollars per month for netflix versus 50
a month for cable was a great deal at
the time it truly felt like a new era of
media consumption the netflix model was
so successful that it changed consumer
perceptions free-to-air content with
advertising became insufferable bloated
paid tv companies that once held a
monopoly seemed outdated in comparison
netflix kept growing and wasted no time
spreading its wings by 2010 it was
available in the us canada latin america
and the caribbean
by 2012 it had made its way to the uk in
australia
original content soon followed with
extremely well received shows like
2013's orange is the new black house of
cards black mirror and later stranger
things
it truly cannot be understated just how
exciting this time was for consumers
particularly those outside the us
netflix was a slick product unrivaled
it is quite the success story especially
when you consider that blockbuster was
once netflix's main competitor
where one company embraced the change
and led a movement of disruption the
other failed to adapt before long
blockbuster were bankrupt and netflix
became one of the most profitable
companies on the planet peaking at a
valuation of 306 billion dollars
you cannot innovate and be successful
for long before others take note of your
idea by the late 2010s this is exactly
what started to happen
at first the competition was from
similar startups but before long the
mega corporations decided to throw their
hat in the ring
over the past few years corporations
with seemingly endless funds has started
rolling out their own streaming services
for five dollars a month apple tv plus
focuses on premium content also for five
dollars a month nbc universal's peacock
took many u.s sitcoms away from netflix
for 15 per month hbo released hbo max
and blew critics away with new shows
like succession and the biggest of all
the tyrannical ip monster that is disney
launched their very own disney plus
which took away all the remaining
nostalgia from netflix as well as adding
original content from the marvel ip and
other tv shows and movies it was 12 a
month for all of that
for context a standard netflix account
is now pushing 16 per month making it
one of the most expensive options we'll
touch on how this is hurting the company
later but at this point in the story
through all of this added competition
netflix was still number one and was in
store for some big wins thanks to a
massive event that was to come out of
china
during the early stages of the pandemic
netflix enjoyed a massive boost in
subscribers along with most other
platforms despite its competition
people were stuck at home and there was
a time when everyone was talking about
tiger king
netflix gained tens of millions of new
subscribers over 2020 and into 2021 and
they became known as the king of the
stay at home stocks a category which saw
massive investment
even midway through 2021 netflix was
still gaining subscribers but this would
all change
as vaccines rolled out and the pandemic
waned consumers were no longer homebound
and netflix had a problem
consumers spent over a year sampling
everything that each service had to
offer and now they were well informed to
decide which ones they wanted to keep
and which ones they wanted to get rid of
the increased quality and quantity of
competition the poaching of ip from
netflix and a slowdown in subscriber
growth could only mean one thing there
was a reckoning coming for netflix
in mid-april 2022 netflix investors
abandoned the company in mass this was
after it was revealed that the service
had lost 200 000 subscribers globally in
the last quarter and expected to lose
millions more in the next the original
estimate was actually growth of 2.5
million
this was the first time in a decade that
netflix had lost more subscribers than
it had gained in a quarter the news was
a shock and immediately caused the stock
value to drop by 35 percent
50 billion us dollars of value was wiped
out from the firm's valuation overnight
scared investors had began to question
has netflix peaked
in a letter to shareholders the
billionaire says while netflix's
business is fundamentally simple to
understand in light of recent events we
have lost confidence in our ability to
predict the company's future prospects
with a sufficient degree of certainty
when you put his name onto a stock like
that a lot of people likely followed him
right down to the drain
in total by the end of april 2022
netflix had lost over 70 percent of its
value since its peak
some netflix investors are furious in
fact some shareholders are so unhappy
that they filed a lawsuit against the
streaming company
they claim that netflix's management
misled them on the financial outlook of
the company
netflix has placed the blame for
subscriber loss on several reasons
they cited increased competition people
returning to work the company pulling
out of russia and password sharing
between households the latter of which
they didn't actually mind in their
earlier days of course these
explanations are absolutely valid
contributions but it's far from the
whole netflix story
netflix cannot simply rely on brand
recognition and lazy consumers sticking
with what they know when other platforms
are pushing new boundaries
there's a lot of content on netflix but
sifting through and finding the gems is
becoming more of an issue than it should
be
when netflix started its exclusive
content was remarkable but now it really
seems like much less of that is being
produced
further to this it also seems that
netflix uses a tiring of their favorite
new series being cancelled after one or
two seasons a common occurrence
other complaints include an emphasis of
late on more politically infused content
which generally doesn't perform well in
any format
the pricing model of netflix is also
compounding the problem price increases
are becoming more frequent for instance
a standard netflix account in 2014 was
just nine dollars per month and now it's
pushing 16 and this is increasingly
unaffordable to many households
with inflation and interest rates rising
consumers generally have less money to
spend on entertainment and netflix is at
the top of the list of things to trim
it all boils down to this why would
consumers pay more for content that's
slowly dipping in quality with shows
that run the risk of being cancelled
the netflix hd option is currently the
most expensive streaming service
available
and in this market this just doesn't
make sense anymore
this is all made worse by the
confirmation that the brand will be
rolling out a cheaper alternative with
ads
ironically this is turning netflix into
the exact same tired viewing experience
the consumers ran away from in the first
place all those years ago
during an interview with investors last
month netflix ceo reed hasting confessed
he had never wanted an advertising tier
for netflix
quote those who have followed netflix
know that i'm against the complexity of
advertising and a big fan of the
simplicity of subscription and he goes
on to say that advertising is necessary
for those who want a lower price this
kind of behavior screams a frantic
concern
layoffs have also hit the company all of
which do not scream a vote of confidence
for netflix
so things aren't looking good for
netflix shedding subscribers seemingly
clutching at straws for revenue raising
ideas laying off new staff members and a
plummeting stock value are all terrible
signs
even the netflix executives themselves
have predicted that the coming months
will be equally as challenging
so what's next will netflix adapt and
survive or will another company rise to
become the king of streaming netflix's
business was completely replicable so
it's not out of the question but perhaps
there's something lurking in the wider
picture maybe right now we're in a
scenario like the video game crash of
1983
we're in for a streaming crash maybe
there's just too many choices spreading
consumers too thin creating a market
that's saturated and can't be sustained
as seen in the last episode with the
catastrophic failure of cnn's streaming
platform we could be in the midst of a
mini streaming bubble at the moment and
just not know it
ultimately we have to wait and see what
happens
in saying all of this there's a high
chance that netflix has simply just had
its time in the sun it's reached its
peak of profitability and any new
changes to increase it will result in
more subscribers shedding
whatever the case is it's going to take
some time to play out
maybe in the far future in an ironic
twist we might be talking about netflix
in the same vein as blockbuster
by the way in my podcast called through
the web i talked about how i thought the
magnitude of the stock crash of netflix
was an overreaction if you want to hear
my deeper thoughts about this and all
things tech and business head on over to
the podcast i post weekly and there's
been some great feedback from some of
you guys so thanks for that link will be
in the description
anyway that's about it from me
my name is digogo and you've been
watching cold fusion and i'll see you
again soon for the next episode which
will probably be on the 28 billion lunar
coin collapse
alright cheers guys have a good one
[Music]
[Music]
cold fusion
it's new thinking
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