Can Netflix be the next Blockbuster?
The story of Blockbuster and Netflix is so captivating in the tech community since it depicts that even a giant 6 billion worth company can be beaten by a small startup resembling the David and Goliath tale. Back in 2000, Netflix was a mere small startup that was doing online DVD rental with a few three hundred thousand subscribers while Blockbuster was operating nearly nine thousand rental stores all over the world by serving millions of people. It was inconceivable at that time that the Viacom-owned behemoth would go bankrupt in 2010 which rejected the offer of Reed Hastings to sell his company ($NFLX) to Blockbuster for just $50 Million.
Since then, Netflix has become the largest streaming service provider in the world boasting around 221.8 Million subscribers. Over the last decade, Netflix did not experience any single quarter without growth in subscriber numbers. It has become a household name not only in the West but also globally.
During the pandemic in 2020 and 2021, Netflix was a Wall Street’s and retail investors’ darling for its growth. It grew by 111.82% as opposed to S&P 500’s 44.73% and Dow Jones’ 26.87%.
This year, Netflix’s state of euphoria seems to get to an end with disappointing earning results. During which S&P 500 and Dow Jones dropped under 15% so far in 2022, the streaming provider plummeted 68.13%. Billionaire Bill Ackman’s (Co-founder & CEO of Pershing Square) loss of more than 400 million on betting Netflix shares also sounded an alarm for investors.
Then, the profound question of “Can history repeat itself?” has risen. Can Netflix become the next Blockbuster that will give way to the emerging and existing competitors? However, HBO, Disney+, Apple TV+, Amazon Prime, and many more are not startups like Netflix back in the 2000s. They were created by legacy media and corporations with deep pockets, but with deep-rooted corporate cultures that cannot fully embrace innovation over efficiency. So, the answer is yet unclear and Netflix can still have the opportunity to retain its title in the coming years. For that, they need to tackle the current pressing issues at full tilt.
In the previous earnings call, the firm’s management reported password sharing as a major threat to its subscriber loss. The irony is that Netflix, indeed, encouraged password sharing as a good practice back in 2017 (Check the picture below). It was definitely their excellent strategy to get Netflix widespread globally. For now, it is incontrovertible that the behavior is hurting the business with an estimated 100 million households which are sharing passwords with friends and relatives. Luckily, Netflix has been testing its new subscription strategy to prevent losses from password sharing. They have tested it in Peru, Costa Rica, and Chile. On the flip side, there will be lots of obstacles in making that strategy successfully implemented in all regions.
On Tuesday, they also introduced the idea that they are exploring a low-priced option for viewers who can endure advertisements while watching movies. Actually, that has been an option in their competitors’ services for years. Therefore, it can help them to get back on track.
In the earnings call, they stated that competition in the market was also too aggressive and one of the top reasons for their subscriber loss. Personally, it is just one side of the story. It is true that the competition is intense, however, everyone has their competitive advantages in the market. For example, Disney has popular movies franchise and series, and Amazon has an enormous shopper base that can be effortlessly turned into Amazon Prime subscribers.
For Netflix , it is regional, original contents.
Most of Netflix’s regional hit series are Asian series. That is an astute business strategy of the management. In regional content production, Netflix is winning over its competitors. That is its cutting edge in the streaming industry. Asia is populated by over 4.5 Billion people and it is a huge market for every service and product. Yet, the majority do not have the spending power like the people from the West. So, if Netflix can combine its low-priced option with its hit regional content, it may maintain its position in the market.
In fact, there are other external factors like the rise of inflation, the Ukrainian War, and the endemic of the Covid-19. Despite the fact that I cannot say the exact scenario of Netflix’s future, Netflix still has the chance to create its grand return in the coming quarters by fixing its weakness and issues.
