Netflix: "That Will Never Work"
From Day 1, Netflix has been written off, even by the wife of its co-founder. By Benjamin Tan
Netflix ($NFLX) just reported Q3 2022 results. Leading up the announcement, Netflix has been one of the most talked about names on Wall Street, with heavy focus on subscriber count. Will it disappoint and continue losing more subscribers, like it did in both Q1 and Q2 2022? Or will it outperform and add more than the 1 million guided for Q3 2022?
With so much more streaming competition these days, especially from Disney ($DIS) and HBO Max ($WBD), Netflix is no longer adding subscribers at the rate that it used to enjoy. Take away lockdown fever that drove binge watching to new heights in 2020 and 2021, expectations of subscriber growth going forward are further tempered. Netflix share price has fallen in tandem with the broader market, and naysayers have become even louder of late regarding its content spend, quality of intellectual property, pivot to gaming, and capitulation to advertising.
That Will Never Work: The Birth of Netflix
The book That Will Never Work by co-founder Marc Randolph chronicles challenges that Netflix faced since Day 1 when it was conceived as an ala carte DVD rental by mail. In 1997, Reed Hastings funded the business with $1.9 million, and Randolph proceeded to assemble a team to turn the idea into a business. It is an insightful read, and underlines the number of pivots Netflix had to make even before transitioning to the streaming model we know today. Following the dot com crash in 2000, Netflix tried to sell itself to Blockbuster as it was running out of capital. When that failed, it experimented with an all-you-can-watch DVD rental model at $19.95 per month that not only saved the company from bankruptcy, it pioneered the subscription model that is ubiquitous today.
Netflix: Change is in the DNA
With everything that Netflix has accomplished, from content production and amassing well over 200 million global subscribers, it is hard to imagine the company not being able to face new challenges ahead. The company has recently announced its advertising-supported subscription model at $6.99 per month in a bid to compete in the lower priced category. Although the company had previously maintained that it would never get into advertising, the competitive environment is different now. Change is in the DNA, and no pivot can ever be ruled out. So far, things are looking good. Below is an except from a report on its progress with advertisers.
“We’ll be working with hundreds of advertisers at launch, from major automotive marketers to CPG companies…Our inventory for launch is nearly sold out.”
Netflix is also experimenting with theatrical releases, merchandizing, gaming and other monetization options to keep the growth machine running. Arguably, if Netflix was about to make all the transitions that it did since 1997, I would not be so quick to write it off.
Q3 2022: Review
Subscribe and receive a link to read a review of Netflix Q3 2022 results
Join Consume Your Own Tech Investing to receive a welcome email with the following:
Latest Top 10 conviction Consumer and Tech positions in my portfolio
Book recommendations on investing, consumer and technology sectors
One article delivered into your inbox every Tuesday
Preview of upcoming articles
Follow me on Twitter @ConsumeOwnTech and Commonstock @ConsumeOwnTech