Daily Column – 21st April 2022

In a new Netflix show called Is It Cake?, professional bakers challenge celebrity judges to decide if it’s cake or not.

But a more pertinent question for Netflix would be: Is it toast?

Yesterday, the streaming service’s shares plummeted 35%, wiping away $54 billion in market value and marking the company’s worst trading day since 2004. The immediate culprit is Netflix’s surprise earnings release on Tuesday afternoon, which revealed that the company lost customers in the first quarter when investors expected a gain.

However, it is impossible to lose more than one-third of one’s market value without raising existential questions about one’s business strategy. Here’s a quick rundown of Netflix’s biggest challenges:

  1. Covid habits haven’t stayed with me. It turns out that when there are other things to do, people don’t want to watch mediocre shows like Tiger King. During the pandemic last year, Netflix’s stock soared to an all-time high as it devoured new members. That hypergrowth turned out to be a hiccup, as we’ve witnessed with the dropping shares of other epidemic winners like Zoom and Peloton.
  2. There is a lot of competition. Netflix used to be the king of the streaming market, and it still is, with 222 million global customers. However, almost every major entertainment firm has followed Netflix’s lead and developed a streaming service. With inflation at a 41-year high, consumers are choosing only a few things to pay for: in the last six months, 35% of Americans reported they had cancelled a monthly subscription.
  3. Its substance is uninteresting. With so much competition (not to mention a $17 billion yearly content budget), Netflix needs to keep releasing great TV shows like Bridgerton and Squid Game to attract and retain its audience. However, according to research firm LightShed Partners, its material “is simply not resonating proportionate to the volume of spend,” particularly in English-language programming.

In the end, Netflix has a few options for boosting growth, including selling adverts and cracking down on extensive password sharing. However, there’s a reason why Netflix’s earnings report pushed shares of media businesses like Roku and Paramount Global lower yesterday. It appears that the streaming market has reached its apex.

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