Separating The Myth From The Reality

Netflix
NFLX
, once the industry’s golden child, has been coming under fire lately, both from Wall Street and from the mainstream media. But as anyone who has been following the industry closely knows, much of what is being said is either unwarranted or not the least bit unexpected.

So here is how to separate the myths from the reality:

MYTH: Netflix suffered a “massive” subscriber loss.

REALITY: Netflix lost less than one-tenth of one percent of their total subscriber base. That’s right: 0.09%. (Around 200,000 out of 221.84 million subscribers) What’s more, had they not pulled the plug on their Russian subscribers, they would have actually gained 500,000 subscribers last quarter. Even their own more pessimistic projection—a loss of two million subs this upcoming quarter—is still equal to less than one percent of their total base.

MYTH: Netflix’s decision to run advertising is a shocking display of how far they’ve fallen.

REALITY: Netflix has planted their flag in every country on earth save China, Syria and North Korea. In a sizable number of those countries, few people have disposable income period, let alone disposable income to spend on an ad-free subscription TV service. Or even an ad-supported one. They will happily watch a free ad-supported service however, and, as such, it was always an open secret that if Netflix was planning to garner any sort of market share in much of Africa, Central America and Southeast Asia, they were going to have to default to a free ad-supported (FAST) model. It was just a matter of when. Could Netflix have delayed launching an ad-supported model in the U.S. and Europe? For a while, maybe. But eventually they will need to do what all their competitors will be doing and offer up a three-pronged platform: a FAST (free) service, a SAVO
VO
D (subscription ad-supported video on demand) service and an SVOD AF (ad-free subscription video on demand) service. Three price points, one service, with the goal being to drive both subscriptions and ad revenue. (Peacock is already there, so, in many ways, is Paramount. The rest will follow in some way, shape or form.)

MYTH: Netflix should be able to keep growing their subscriber base indefinitely.

REALITY: There are only so many people who want a $15/month subscription pay TV service, no matter how awesome it is. Right now, Netflix is in around two-thirds of all U.S. homes. That number may go a little higher, but not much. As per Pew Research, only 85% of U.S. adults own a smartphone, so why would we think that Netflix would be able to rival or surpass that number, especially given the increasing number of alternatives and the far greater utility of a smartphone. The notion that Netflix’s subscriber growth would continue unabated never made any sense and the huge numbers they racked up during the pandemic only accelerated their reaching the limit.

MYTH: Streaming is in a “bust” stage

REALITY: Streaming is still as popular as ever and recent moves by big cable companies like Charter and Comcast
CMCSA
to roll out their own streaming devices and interfaces indicate that the industry is all-in on the move to streaming. Streaming is in a shake-out phase right now. There will be mergers, stumbles and repositioning. But it will become the primary delivery mechanism for TV and the current linear pay TV ecosystem will slowly but surely merge into the streaming ecosystem to create the viewing platform of the future. That said, no one ever actually believed that all nine multibillion dollar streaming services would become major successes without any sort of mergers of stumbles. In any new industry there is a winnowing period until there are two or three, maybe four big players left. That seems to be what the market will bear and streaming TV will not be any different.

MYTH: There are a lot of really bad shows on Netflix

REALITY: Okay, this one is true—there are a lot of really bad shows on Netflix. The service got caught up in the volume game and figured that if they produced 150 shows each year and only 10% became hits, they’d have 15 hit shows on their hands. They forgot that people would be aware of the remaining 135 shows and that those series would show up in their recommendations and help to create the impression that much of what was on Netflix was pretty bad. Again, logic dictates that in any creative endeavor, volume is the enemy of quality, that there are only so many talented people out there capable of making great TV shows and that it’s all but impossible to nurture that sort of talent when you’ve activated an assembly-line-like production flow. Netflix, it seems, panicked when various networks and studios began taking back all their library content and set out to create a library of its own, but producing that many new originals all at once was not the right way to do so. Lesson learned.

We are still in the early days of streaming with a whole lot of shaking out and shaking up to do, especially as all the major U.S.-based services attempt to go global. The biggest unknown is programming: no matter how much data you throw at it, what will make a series a hit will forever be unquantifiable.

To use a favorite example: if in 2010, I had told you that a series set in a quasi-medieval world filled with wizards and dragons, with a cast of largely unknown European actors would be the decade’s biggest hit, you’d have been well justified to think I was crazy.

And that is what makes this industry so fascinating to cover.