Netflix: Too Broke To Be Woke

Netflix is being hammered by the gods of irony, for the platform, which has been home to some of the greatest stories told, globally, over the last decade, is now starting to become a story of a downward spiral itself, and that too one of the biggest since the dot com bubble crash in the early 2000s.

Earlier this month, Netflix announced layoffs for around 150 people or around 2 per cent of its workforce, citing business needs. This followed another layoff, smaller in number, however, in April.

In 2018, Netflix CEO Reed Hastings stated that the next 100 million subscribers for the platform will be from India. He wasn’t exaggerating, for both Amazon Prime and Disney+ (Hotstar in India) with 19 million and 46 million subscribers are justifying the market potential. Netflix, however, is struggling at 5.5 million. In India, as of now, it is still gaining subscribers, though at a snail’s pace. Globally, Netflix lost 200,000 subscribers in the first quarter of 2022, and predicted another quarter of the subscriber growth being in red, thus resulting in the stock plummeting.

Netflix has lost almost 70 per cent of its value in the last six months. Eager to explain the causality, many observers and analysts, especially in India, have attributed the downfall to the woke content on the platform and how it has failed to draw any subscribers. Beyond Twitter, the theatrics of boycotting entertainment sector barely work, and to assume that the fate of a company as big as Netflix depends on one or two or ten woke shows is an incorrect assessment. Yes, Netflix is broke, but not because it chose to be woke in some of its productions.

In another update to its employees, the company made clear that the employees must be willing on content they may not agree with. The company stressed that it wanted the subscribers to choose what they wanted to watch against having employees censoring certain artists or themes. The update came in the wake of the support company ensured for comedian Dave Chappelle in 2021. The comedian was criticised for some of his remarks about the transgender population in his show ‘The Closer’.

The update to the company’s cultural guidelines was also to discourage prospective employees who might not agree with the idea with the productions hosted on Netflix, as per their spokesperson. Yes, because Netflix is broke, it cannot afford to be be woke and censor some of its productions in the future. There lies the causality. They need every single prospective penny for they are too broke to be woke.

Netflix is also being tested by an economy that is borderlining a recession. There is the inflation factor that can be attributed to the crisis in Ukraine and the Covid-zero lockdowns in China, and the end of pandemic spoils in the form of a very liberal monetary policy from the central banks across the globe, adding to the stress of the stock. The forced home stays during the pandemic allowed people to experiment with several streaming services, across the world, but that party is now coming to an end. It had to.

Netflix, already suffering due to the competitve pricing, is also considering launching an ad-supported version, globally, priced lower, going against the very principles it has advocated across the last decade. The ad-supported version may come as early as the end of 2022. In India, Netflix launched at a minimum price of Rs 500, before coming up with a mobile-only version of Rs 199, and is now available for as low as Rs 149. Disney+, however, is available for one-third the price.

The desperation to go for advertising can be explained by Netflix’s precarious situation this year. If the subscriber count rout continues for another two quarters, the company could be staring at a share price of less than $100.

Netflix has wiped out all its gains from the pandemic when its share price went as high as $690-odd in October 2021 from $330-odd in March 2020. Netflix’s shares had not traded below the $200 mark for more than four years, with December 2017 being the last month before April 2022. At the end of 2017, Netflix’s market capitalisation was around $83 billion at a share price of $190-odd. Today, the market cap has slipped to around $95 billion even when it closed in 2021 at more than $267 billion.

Most forecasting models assume Netflix to touch the 400 million subscribers mark by 2029, or 300 million by 2024, and hit a pricing point of around $20 to have its share price trade at around $200. This appears to be an impossible ask with the recent numbers in hindsight.

Even if Netflix were to charge $30, owing to the OTT competition and inflation by 2029, it would need at least 300 million subscribers to have a share price of around $250, as per one forecasting model. That would warrant the addition of around 10 million subscribers each year for the next eight years, or 2.5 million subscribers each quarter. The problem for Netflix is that it is neither getting the pricing right nor subscriber growth. A projected loss of two million subscribers, net, for the next quarter will only rattle the investors.

Netflix, with all its faults and troubles today, remains the OG of streaming (to use an urban slang). Thus, to its destiny, many, link the existence of other streaming services. Some have gone as far as posing a question against the idea of streaming services, merely because Netflix is falling. The truth, however, is more intricate. Disney adding 20 million subscribers in the last two quarters has a lot to do with the content they offer, globally, and across specific markets (like the IPL in India).

Netflix falling has a lot to do with its business model, pricing competition, sports streaming, lack of bundled services, no big-ticketing franchise like Marvel, debt, acquisition costs, content rights, and so forth. An elaborate explanation of an array of factors can be found here.

Merely six months ago, this existential crisis was not being deliberated for the streaming industry as big and bold financial commitments were being made. Together, the top eight media groups in the United States were planning to spend close to $120 billion in 2022 alone. Disney alone was planning to spend in excess of $30 billion while Netflix had plans to get into a positive cash flow by 2022, and spend close to $17 billion.

The fall of a company like Netflix is often confused as the fall of an idea, in this case, streaming services, but the long-term prospects for the likes of Disney, Apple, Warner Media, and Amazon are only getting better and brighter.

Netflix, as a company, was one of those pioneers that went into a small town and set up a stall for cheese garlic bread, to give a food analogy. For as long as the small town was distant from the urban ways, the cheese garlic bread was a novelty, bringing people to lighten their wallets and being the centre of attention. Many years later, a pandemic happens, and the digital road is widened getting a lot of pizza shops from the city to the smaller town.

For these pizza shops, the new novelty in town, the cheese garlic bread is a mere side order they can throw away for free with the main offering. That is exactly what the likes of Apple, Amazon, and Disney, with alternate revenue streams, are doing through their entourage of services or hardware.

What was bread and butter for Netflix, for more than a decade, is merely a customer acquisition practice, offered as one of the many services by the new players in town. For the corporates, streaming revenues are not the crowning jewels of their balance sheets, but mere bonuses. Profits or no profits, they have enough money to keep this side-hustle going. Netflix, however, has a huge debt, a spooked investor fraternity, and that leaves it too broke to be woke.

Also Read: Long Read: '13 Reasons Why' Netflix Is Actually Struggling