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Issue link: https://digital.macdirectory.com/i/1488864
Netflix was never a great business. The logic evolved from sending movies as DVDs by email, ordered through an online catalog, to having the same selection available for download (streaming). Everything was subscription-based so bundling gave movies a “binging” consumption option. But this depended on the having access to good titles. The access was easy at first since Netflix was a new channel and it was a bonus for the movie publisher. Pure margin. But over time the movie publishers saw the new channel eating into existing distribution and they thought they could deliver it themselves, increasing margins. The catalogs were suddenly cut off. Netflix responded bravely: they would make their own movies. Out came the checkbooks and the distributor became the producer. Amazing. But is that really a good business? You have to make movies which are very expensive. Some will be hits, some won’t. You thus have to make a lot of them. And then you have diverse demand. People want to have all kinds of genres. So you have to make them all. And what’s more you can’t really market them as events because they are so numerous. It sounds really hit-and-miss with a huge risk. At this point you have to raise pricing. And then came the competition who, like Disney, said “we have better, more targeted family content”. Or Apple TV+ which simply said “we have better quality.” Many other streamers offered alternatives like Amazon Prime with a smorgasbord approach. Sure, households could subscribe to all these services, but the bill would start to be painful. Not much savings over the cable bundle. Netflix increasing price sends many for the exits. The company then drops a bomb: they feel they can’t grow subscribers because they are “near saturation” and the families which are not yet paying are probably using “shared” passwords. It can only grow if it converts the non-payers. That all happened rather quickly. The market loves movies and the internet and who doesn’t. It’s just that movies and the internet don’t make a great business. Movies look to be more of a feature of an internet service bundle. That’s Apple’s approach. They don’t see video as a business but as hygiene: must-have something to put in a bundle. So Netflix, who first unbundled the neighborhood video store, then bundled production and distribution was itself not much more than a substitutable piece of a bigger bundle. For this reason I always wondered why there was an “N” in FAANG. Netflix always seemed more a transient idea: yes people like movies, as they like music and books and magazines. And producing and distributing media has undergone dramatic change with computing and internet. But a business that only produces and distributes a single media type may be an ok business but should it be put on the same level as platform companies with billions of users? Netflix has 200 million subs but that is not a big number. Apple distributes 785 million subscriptions to over 1 billion customers. Google has at least 2 billion users, Microsoft about 1.5 billion and Meta is over 3 billion. Netflix says it can’t get many more and indeed they forecast losing 2 million next quarter. It’s a bit sad, but reminiscent of the games industry: it has its limits and the limits mean that it can’t be seen as a ubiquitous and hence maximally valuable asset.