The Rise and Fall of Netflix (Investors Are Suing)

Summary

This 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

00:00

📺 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.

05:01

📉 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.

10:02

🚨 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.

Keywords

💡Innovation

Innovation refers to the process of translating an idea or invention into a good or service that creates value or for which customers will pay. In the context of the video, Netflix is synonymous with innovation because it pioneered the contemporary model for digital media consumption, disrupting the traditional way people consumed media.

💡Disruption

Disruption in business terms refers to innovations that create new markets and value networks, disrupt existing markets and value networks, and displace established market leaders. Netflix has been a disruptor by almost single-handedly pioneering the streaming model, which has challenged traditional media consumption methods.

💡Streaming Platforms

Streaming platforms are services that deliver content over the internet in real time, allowing users to watch or listen to media on demand. The video discusses the explosion of streaming platforms from 1 to over 200, highlighting the intense competition Netflix faces.

💡Stock Price

Stock price is the current market value of a single share of a public company's stock. The video mentions Netflix's stock price plummeting by 70%, indicating a significant loss in market value and investor confidence.

💡Unsubscribing

Unsubscribing refers to the act of canceling a subscription to a service. The script discusses hundreds of thousands of households unsubscribing from Netflix, which is a key indicator of the service's declining popularity.

💡Original Content

Original content is material produced by a company or individual that is unique and not found elsewhere. Netflix's original content, such as 'Orange Is the New Black' and 'Stranger Things,' is mentioned as a key factor in its early success, attracting subscribers with exclusive shows.

💡Competition

Competition refers to the rivalry between different companies or individuals to gain customers or to achieve a particular goal. The video discusses how increased competition from other streaming services has put Netflix in a challenging position.

💡Pivoting

Pivoting in business means changing the strategy or direction of a company in response to changing market conditions. Netflix pivoted to online streaming in 2007, which was a strategic move that allowed the company to grow significantly.

💡IP (Intellectual Property)

Intellectual property refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, names, and images used in commerce. The video mentions the poaching of IP from Netflix, which has led to a loss of exclusive content that was previously attracting subscribers.

💡Market Saturation

Market saturation occurs when all or nearly all potential consumers within a given market use a product or service. The video suggests that the streaming market may be reaching saturation, with too many choices for consumers, which could lead to a 'streaming crash'.

💡Ad-Supported Tier

An ad-supported tier is a service level that includes advertisements in exchange for a lower cost or free access. Netflix is considering an ad-supported tier, which is a significant shift from its original subscription-only model, indicating a response to competitive pressures and changing consumer preferences.

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]

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