when netflix (nflx) – Get a free report First going from offering reruns and old movies to producing its own content, the company was a prestigious work. In many ways, the company followed the lead of Warner Bros. Discovery’s (wbd) – Get a free report HBO, a cable giant that focused on quality.
HBO was never a volume game. It always kept subscribers by only having a few massive hit shows that people felt needed to be subscribers in order to watch. Whether it was ‘The Sopranos’, ‘Sex and the City’, ‘The Wire’, ‘Six Feet Under’ or, most recently, ‘Game of Thrones’, HBO was a prestigious opus offering shows you couldn’t find anywhere. elsewhere on cable or broadcast.
In some ways that’s an expensive business model (dragons aren’t cheap), but in other ways it’s actually cheaper. Having a few prestigious shows that satisfy and grow your subscriber base costs less than trying to produce shows on a large scale.
That’s a lesson Netflix seemed to understand in its early days. The company built its business on having a few shows, like “House of Cards,” “Orange Is the New Black,” “Ozark,” “Stranger Things” and a handful of others, that drew in viewers, while building word of mouth. of mouth
Netflix has clearly moved away from the prestige model in favor of producing programming not to become more casual conversation, but to please the company’s algorithm. That’s why the streaming giant produces a seemingly endless array of shows that no one talks about, cares about, or tells their friends about.
Now, while the answer should be obvious for Netflix: produce fewer shows, but make what you produce fit the prestige TV model, the company continues to head down the wrong path.
Netflix continues to cheapen its programming
People will pay for premium programming. walt disney (DIS) – Get a free report It has demonstrated this with its Disney+ streaming service. The channel offers top-notch must-see shows that people are talking about, and that’s been enough to make Disney+ the number two streaming service with roughly two-thirds of Netflix’s global paid subscribers despite not yet being three years old.
For decades (before its current ownership mess), HBO demonstrated that consumers would be happy to pay a premium price for premium television. Disney has reinforced the success of that model with Disney+ while reserving ad-supported pricing for its second-tier Hulu service.
Price is important when you have a product of dubious value. Hulu offers reruns, a limited list of mostly low-budget shows and no blockbuster shows that people have to watch. The same could be said for Comcast. (CMCSA) – Get a free report Peacock and Paramount Global (FOR) – Get a free report Paramount+.
These streaming channels do not have Disney’s lineup of Star Wars and Marvel shows to attract subscribers. Sadly, that’s also true of HBO now, so the once-premium offering has launched an ad-supported version, which Netflix has done as well.
You can’t be cheap and premium. That’s why Disney theme parks never offer discounted admission (with limited exceptions for Florida residents). An ad-supported tier makes Netflix and all of these other services less special because if they had shows that people wanted to watch, they’re a $15 or even $20 a month deal.
Now, Netflix has pointed out that cheap might not go far enough.
Netflix open to a free offer
Paramount has made a lot of money from its free Pluto TV service. Pluto offers a collection of old reruns that people apparently watch. This is a money making strategy, but offering reruns of “Manimal,” “Who’s the Boss,” and “Airwolf” alongside an endless supply of shows no one has ever heard of is a financial game, not a brand builder. .
Pluto, like the Roku channel, and Amazon’s AMZN Freevee are free ad-supported streaming (FAST) channels. They reuse old content as a way to sell ads. It’s a smart strategy perhaps (although it’s hard to see how it’s sustainable), but it’s a very different model from what Netflix has been.
There’s nothing wrong with bundling basically free (and free) programming for people who are looking for that, but you don’t want to do that with your core programming. Netflix Co-CEO Ted Sarandos answered a question about the company’s launch of a FAST channel during his fourth quarter earnings call.
“Yeah. Look, we’re open to all these different models that are available right now, but we’ve got a lot on our plate this year, both with paid trading and with our advertising release and continuing this list of content that we’re trying to take our members. So, we’re keeping an eye on that segment for sure,” he said.
The problem is not that Netflix would get into the FAST space, but that the questioner mentioned that Netflix leverages its decade of producing its own IP as the way to do it. Essentially, that would be the company giving up its paywall, albeit for older programming, undermining its core offering.
“Stranger Things” or even the Adam Sandler movies are new to people who haven’t seen them. That’s a core part of Netflix’s business model. Making some of those shows available for free undermines their value in attracting future Netflix subscribers.
Netflix had a business model that worked, that was sustainable as long as you created great shows that interested people. Now, the company has lost its creative shape, and management has shown that it’s not even looking to go back to being the date TV people talk about.