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Today in The Juice, we explore a theory around the Netflix (NFLX) disaster, but first an ironic thought …
57 Channels (And Nothin’ On)
In 1992, Bruce Springsteen wrote a song – 57 Channels (And Nothin’ On) – lamenting emptiness amid seemingly unlimited choice.
We could relate. All these channels on our boob tubes, yet we wasted so much time looking for something to watch.
Years passed. Increasingly, we chided cable companies for making us buy packages full of channels we never watch. We wanted choice. We wanted a la carte.
Fast forward to the modern day when most 25-year olds have no clue who Springsteen is (look him up) and we got what we wanted. And then some.
57 Platforms (And Nothin’ On)
Pay-TV providers lost another 4.7 million subscribers in 2021, as big streaming platforms other than Netflix continue to gain.
If you can do without all the live sports, you probably rely on streaming for your “TV” viewing needs. The younger you are, the more likely this is.
You also spend a ton of time browsing. What we used to call “flipping through the channels.”
While the pandemic skewed the data, most studies indicate we actually spend more time browsing streaming platforms than we did cable TV looking for something to watch.
It’d be easier on the remote control if we just took all the individual streaming platforms and put them on one platform so we could browse aimlessly, but seamlessly.
Oh, the irony
Stranger Things Tells Netflix’s Sad Story
We get restless here at The Juice.
Because the analysis we read around big stories can get repetitive fast.
With this in mind, let’s shake things up.
The Writing On The Wall
When Netflix’s big hit, Stranger Things, was last on in 2019, the company said 40.7 million accounts viewed the show in less than a week. Upwards of 18 million had binged the entire thing.
Stranger Things returns for season four, split in two parts, on May 27 and July 1, respectively. Call Stranger Things Netflix’s Game Of Thrones. It’s one of the few shows that keeps subscribers engaged and subscribed.
Why Is Netflix Splitting A Nine-Episode Series Into Two Parts?
We can see the writing on the wall, but has Netflix seen it all along?
Granted, each episode in season four of Stranger Things clocks in at over an hour, but that’s no reason to split a nine-installment run in two. No reason unless you’re milking pretty much the only massive hit you have left as you bleed subscribers.
The Numbers Add Up And Might Get Worse
Netflix lost 200,000 subs last quarter. It expects to lose 2 million more by July 1, which is the end of Q2.
And that’s with Stranger Things!
You can’t help but think there’s something to releasing part two of season four of its biggest hit on July 1.
What’s gonna happen once millions of subscribers immediately binge the remaining episodes?
How many more subscribers will Netflix lose at the beginning of Q3 when people like my daughter have little use for Netflix other than to wait for the final season five of Stranger Things?
There’s the obvious one. The one HBO struggled with for years after GOT. Find another hit show. Or two. Or three.
There’s the ad-supported approach. Hulu and YouTube use it.
I can’t believe that’ll fly, especially with 18-year olds like my kid. If a streaming platform has a ton of content you like, you’ll drop the extra few bucks a month to view it minus advertiser interruption.
I even read an article the other day arguing “Netflix needs live sports.” Please, Netflix needs the costs associated with securing these expensive contracts like it needs a hole in its head.
A Lean And Mean Netflix Won’t Matter To Investors
It’s really incredible. Classic Reed Hastings.
The guy who used to ask us to justify Netflix’s crazy spending on content to grow subscribers – the “virtuous cycle” – now touts cost-cutting and reduced content offerings. Basically, a leaner and meaner Netflix.
When’s the last time investors judged Netflix on profits? Or spending? Or even vaulaton? On any old school financial metric?
It all comes down to subscribers.
As long as the subscriber number grows, Netflix stock goes up. Even back in the day when the company wasn’t close to profitability amid loads of debt, primarily debt used to secure third-party and, increasingly, original content.
To keep that subscriber number healthy and growing, Netflix needs hit shows. It can’t milk nine episodes of Stranger Things for all they’re worth.
Sounds like desperation to us.
The Bottom Line: If you buy Netflix stock, you’re buying a one trick pony. A pure play streamer.
It’s akin to buying HBO as a standalone entity. You’re at the mercy of the cycle all content creators go through. A period of big hits followed by flops followed by a new batch of shows that resonate.
The ebb and flow we saw HBO go through after GOT and we’re seeing Netflix go through now. An ebb and flow we expect to intensify after Stranger Things season four.
Investors own HBO as part of a larger multinational entertainment conglomerate. At the moment, you’d buy Warner Bros. Discovery (WBD) for HBO exposure.
As the CEO Of the new Warner/Discovery said earlier this month, taking a swipe at Netflix, with WBD you get a “far more balanced” company.
In the next Juice, we look at Warner/Discovery and consider it as an ecosystem play, not a relatively risky, pure play streamer like Netflix.
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