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 ($NFLX) just reported Q3 2022 results and they are well above expectations - see more below. Netflix has been one of the most contentious names on Wall Street, with a heavy focus on subscriber count. Analysts continue to wonder if Netflix will lose more subscribers, like it did in both Q1 and Q2 2022. Or will it reaccelerate growth in some fashion?
With so much more competition these days, especially from Disney ($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 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 a la 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 doubled down on its all-you-can-watch DVD rental model at $19.99 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 original content production to amassing well over 200 million global subscribers, it is hard to imagine the company not having the DNA to face new challenges ahead. Netflix has recently announced its advertising-supported subscription model at $6.99 per month (launching November 3) in a bid to compete with other AVOD streamers at similar price points. Although the company had previously maintained that it would never get into advertising, the competitive environment is different now. Change is in the DNA for Netflix, so no pivot should ever be ruled out.
So far, things are looking good. Jeremi Gorman, president of worldwide advertising for Netflix, said:
“We will have hundreds of advertisers worldwide at launch -- from major automakers to CPG companies, leading travel, retail, and luxury brands. In fact, we have nearly sold out all of our inventory for launch.”
Netflix will be launching the ad-supported service in 12 countries: Australia, Brazil, Canada, France, Germany, Italy, Japan, Korea, Mexico, Spain, the U.K. and the U.S. In the U.S., CPMs are reportedly up to $65, which is multiple times higher than Hulu and Roku.
Netflix is also experimenting with theatrical releases, merchandizing, gaming and other monetization options to keep the growth machine running. Arguably, if Netflix was able to make all the transitions that it did since 1997, I would not be so quick to write it off, as markets have of late.
Q3 2022: Review
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