Netflix is experiencing something of an identity crisis. Once the undisputed leader in streaming video, the company is now facing the prospect of slowing growth, heightened competition, high debt, a low hit rate, and a dreary narrative both in Hollywood and on Wall Street. Competitors are offering more premium content and cheaper plans. Meanwhile, subscribers are looking to trim their monthly budgets as the economy slows and prices rise. Not for nothing has Netflix’s stock price plummeted more than 70 percent since last fall.
Look, people have written a lot about Netflix lately—its future, its mistakes, and where it can cut costs. I recently learned, for instance, that Netflix has a shuttle plane to ship employees back and forth between Los Angeles and Los Gatos. Is that a bit grand in the Zoom era? But I’m not going to get into all that. Instead, I want to discuss the impact of one show: Stranger Things.
A Global Phenomenon
Stranger Things, which debuted in 2016 and returned this weekend for its long-awaited fourth season, is one of Netflix’s most important shows for two key reasons. First, it proved that Netflix originals could play globally, helping to create customer bases in more than 130 countries. Travel outside the U.S., particularly in Europe, and the Stranger Things brand is ubiquitous. It’s a genuine international hit.
Looking purely at the data, Stranger Things has performed like no other Netflix show. Since 2016, it has remained Netflix’s second most in-demand series globally, amassing a peak demand of 223.2 times the average demand of all shows globally within the same time period, according to Parrot Analytics, where I’m director of strategy. (For comparison, audience demand for The Mandalorian on Disney+ peaked at 144x.) And it continues to be exceptionally popular, even between seasons. Average demand for Stranger Things sits at 46.3x the demand of all shows globally—a number that most shows never reach, even at their peak. Indeed, it is currently the most in-demand show in the world.
The media impact has been extraordinary. Up until 2015, Netflix primarily operated within the U.S. Then, on Jan. 6, 2016, Netflix launched in 100 countries simultaneously, banking on a growing list of originals, local titles, and a massive catalog. Stranger Things, a throwback sci-fi drama that harkens back to an era when Hollywood was still unrivaled in the global cultural arena, played a key role in that international growth.
The series first went viral in Canada, and expanded from there. After 30 days, “Netflix users in 190 countries watched Stranger Things, and viewers in 70 of those nations became devoted fans,” Wired reported in 2017. Demand quickly jumped from around 40x the average series globally to nearly 100x the average series, surpassing shows like Mr. Robot, The Flash, The Walking Dead, and Orange Is the New Black.
Of course, Netflix’s market position today is much different than it was in 2016, when the service had 83 million subscribers, compared to 222 million today, and the service’s most popular plan still cost only ten bucks. Netflix is still growing internationally, where Stranger Things is a key driver for customer acquisition. But in core markets like the U.S. and Canada, Netflix is playing a more defensive game. Last quarter, the streamer lost 640,000 subscribers in the U.S. and Canada, triggering investors to panic-sell the stock. Can Stranger Things lure them back?
We’ll know more in July, when Netflix reports its Q2 earnings. In the meantime, we can look at past data for insights into how the new season could drive subs. According to a Cowen & Co. study, published ahead of the third season, in 2019, Stranger Things was the reason 13 percent of lapsed Netflix customers in the U.S. returned to the platform. If a similar percentage of the 640,000 subscribers whom Netflix lost last quarter reactivate this year, that would represent the return of some 83,200 customers, or about $15 million in annualized revenue, and far more in lifetime value.
It’s been three years since Stranger Things debuted new episodes, so it’s possible that the collective audience appetite may have changed, but pre-release demand for the show was tracking higher than pre-release demand for any other Stranger Things season. And attention, which leads to renewed subscriptions or reactivated plans, is precisely what Netflix needs right now.
The PJs Question
Second, and perhaps most importantly, Stranger Things is one of the few Netflix franchises with a flywheel, like events and consumer products. If Netflix aspires to be more like Disney, rather than CBS, it needs to develop brands that generate revenue and mindshare beyond the single week period, every other year, when a new season is binged. Stranger Things, a Spielbergesque horror-fantasy expertly designed to tickle Gen X erogenous zones, is the perfect vessel for those nostalgic ambitions.
Joker director Todd Phillips once said at a Hollywood Reporter roundtable that Warner Bros. worried whether a hard-R-rated Joker movie would sell PJs—a concept that Phillips scoffed at, reflecting that pajamas were supposed to be an idea after the movie came out, not before. But for Warner Bros.—which makes Batman movies, video games, animated TV series, board games, live experiences, N.F.T.s, and, yes, pajamas—it’s an important question. Creating a flywheel is core to chasing, owning, and delivering upon big I.P. It’s why studios are obsessed with finding the next big franchise.
For Netflix, Stranger Things fired up its first real flywheel. Licensed merchandise filled Target and Walmart. Video games were created with top-tier gaming studios like Telltale, and published on major consoles like PlayStation 4 and Xbox One. Experiences, like a drive-thru haunted house and a pop-up store in New York, expanded the brand. Even if the various ancillary paths didn’t generate the type of revenue that Marvel or DC do for Disney and Warner Bros., respectively, they did allow for Stranger Things to grow, increasing the longevity of Netflix’s biggest investment at the time.
Thanks to that flywheel, Stranger Things is one of a handful of Netflix shows that has strong franchise potential—a spinoff series, a movie, or even an anime. According to Parrot, Stranger Things has a franchiseability score 47 times higher than the average potential of other series—a number that only 0.33 percent of shows reach.
There are three groups that Stranger Things fans possibly fall into: core Netflix users, churn and return lapsers, and “I don’t care enough to resubscribe” deserters. Netflix isn’t worried about the first cohort. The second group, of course, is precisely the one that Netflix needs to convince to stay after they’ve finished bingeing the new season. And yet it’s the third group that Netflix should really worry about. If you can’t bring back customers who once loved one of your most popular shows, it’s going to be increasingly difficult to take the edge off your projected 2 million subscriber loss next quarter.
The Stranger Things Halo
Netflix has been in tough spots before. When Stranger Things first premiered in 2016, Netflix warned investors: “We are growing, but not as fast as we would like or have been.” Sound familiar? Since then, Netflix has added 138 million subscribers and maintained its dominance. But lately the outlook has dimmed, and management has cited “revenue growth headwinds.” Put another way, Netflix needs to fix password-sharing issues, find the next batch of high quality hits that brings in new subscribers, and fortify its catalog as competitors pull back content. Oh, right, and do this at a time when every rival is set to launch its own high-profile, I.P.-heavyweight series: She-Hulk, Andor, Lord of the Rings: The Power of the Ring, House of the Dragon … and those are just the shows premiering between Aug. 17 and Sept. 2.
Creating hit after hit after hit is easier said than done. And Netflix has a quality assurance problem with its original content. Indeed, the hit ratio is much lower than some of its competitors, in part because Netflix wildly outspends those competitors.
Moreover, there’s less friction than ever for customers who churn and return. People finish a show, set a reminder to cancel in 28 days, and then go back to HBO Max or Paramount+ or whatever other streaming service they prefer. Stranger Things Season 4 (Vol 1.) changes that calculus. By splitting up the season between May and July, Netflix is trying to keep those new or newly returned subscribers paying for longer than just one month. Stretching the full season out across a few months can help to reduce churn while using new programming to demonstrate value and keep users engaged for longer. (It also helps Netflix secure an additional Emmys window since the cut-off for consideration is May 31.)
Stranger Things isn’t going to be as impactful today for Netflix as it was in 2016. The executives know this, we know this, and the subscribers know it. But Stranger Things, and other potential series that Netflix can eventize, will buy the company some time, comfort, and security. Stranger Things and the binge drop made sense back in 2016, when Netflix had little competition and a much stronger catalog of old favorites that people could watch after they finished the new, big sci-fi tentpole.
For Netflix to compete now, it doesn’t have to reinvent the wheel, it just needs to do what others have done in the past. Turn the biggest hits into longer, drawn-out affairs. Season 4 premiered on Friday—but it doesn’t end until July 1. And that’s kind of revolutionary for Netflix, the way Stranger Things was when it first premiered eight years ago.