R.I.P., Netflix Narrative

Reed Hastings
Netflix co-C.E.O. Reed Hastings. Photo: Elizabeth Fuentes/Getty Images
Matthew Belloni
July 21, 2022

It’s funny, talking to a few people at Netflix this week—both before and after the Big Reveal—there was a sense of indifference about the subscriber numbers. Wall Street and the media might have whipped up the Tuesday earnings report as a referendum on the entire entertainment industry, the most important data drop in the history of streaming. But the people who actually make the Netflix content seemed, from my admittedly small sample, to be a bit numb to the hoopla. Down 970,000 subs last quarter—“less bad,” in co-C.E.O. Reed Hastings’s words, than the Netflix-created benchmark of minus 2 million. OK… great? A projection of 1 million subs added next quarter? That would reverse six months of losses and restart the Netflix growth machine—put the Dom on ice, right? Yet that’s nowhere near pre-2022 projections, and it’s a fraction of the growth rate of rival streaming services. So… maybe the champagne should be Mumm’s instead.  

Yay Netflix, boo Netflix; it’s hard not to feel like this is all just a slight variation on the same theme: Netflix is now a slow-growth company. Profitable, yes, with great content, a commitment to working with the best artists, and an amazing 220 million subscribers to consume it all. But its rocket-ship trajectory and $200 billion in market value have gone poof, meaning it’s basically a—gasp—legacy media enterprise that, at least for the foreseeable future, must operate in many ways like the media peers it disrupted, whether Hastings will say that publicly or not.

And, for some reason, he’s still sticking to that disruptor narrative. Trashing competitors by predicting “the end of linear TV over the next 5, 10 years” isn’t just wrong—the N.F.L., which is signed to the broadcast networks through 2033, might like a word with Reed—it feels defensive. As did this comment from the shareholder letter:

“We’re unencumbered by legacy revenue streams. This freedom means we can offer big movies direct-to-Netflix, without the need for extended or exclusive theatrical windows.”

Yes, that’s been the Netflix line for a decade now, but it no longer rings true. In fact, the stock market—the geniuses that gave Netflix its ridiculous valuation in the first place—now seems to want both subs and revenue growth, and most observers see Netflix as needing to act more like its “legacy” rivals, not less. Hastings’ wagon is already hitched to decidedly legacy endeavors like advertising and cracking down on free sharing. It’s as if the coolest name in entertainment were now on par with those music industry squares suing Napster 20 years ago. But even some top executives inside Netflix believe its big-budget movies should play for a while in theaters, and big shows should drop episodes weekly rather than all at once. And many think it’s smart to sell shows into syndication to capture value from old series that are sitting mostly unwatched on the service. Very legacy, but very profitable.   

I won’t dive too deeply into the numbers. My Puck colleague Julia Alexander has crunched the data and points to some major challenges ahead, and William Cohan, another Puck-er, makes a strong argument for why Netflix might just pack it in and sell itself. I tend to think Netflix will be fine, based on dramatically diminished expectations. True, plateauing spending at $17 billion a year, which co-C.E.O. Ted Sarandos said is “in the right ZIP code,” would actually be a spending decrease, given the cost of shows goes up each year. And the competition is so fierce, from companies with 100 year old libraries and, yes, diverse revenue streams to support the linear-to-digital transition. “In streaming, the risk is that a slowdown in content investment at Netflix could lead to even slower revenue growth as the creation of ‘hits’ is often a random walk,” analyst Michael Nathanson noted.

All over Hollywood, the signs of decreased U.S. spend are obvious. Tighter dealmaking, fewer overalls, trimming of the fat on development slates. Netflix calls it an “evolution” of its content operation. But most people can see that it’s a retrenchment. Still, like I said, Netflix has great content, with much more on the way. Spike Jonze, one of my favorite filmmakers, is quietly working on a lavish series at Netflix that hasn’t been announced yet, but which has a writers room and a broad, expensive canvas. Shows like that aren’t ending. Netflix just needs to increase its hit ratio with them. 

But despite Hastings and Sarandos’ unwillingness to admit they must pivot a bit toward the status quo, the reality is stark: The dream that many Netflix employees signed up for—that Shangri-La of 500 million subscribers and global dominance (with lucrative stock options to match), all while remaining the cool kids of Hollywood that make more money and outbid rivals at will—has died. R.I.P., The Netflix Narrative.