ColdFusion - The Rise and Fall of Netflix (Investors Are Suing)

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Starting point is 00:00:26 Discover coffee plus on nispresso.com. Hi. Welcome to another episode of Cold Fusion, where I cover anything in science, technology, business or history. For over a decade, the Netflix brand has been synonymous with innovation and disruption, from humble beginnings in the late 90s to almost single-handedly pioneering the contemporary model for digital media consumption. Netflix has been a success in every sense of the word. But being the first at something means that people are just going to imitate you. Over the past decade, the number of streaming platforms has exploded from one to over 200 with more coming. This competition, along with creative choices and growth struggles,

Starting point is 00:01:08 has led Netflix into dangerous territory. Netflix's stock price has plummeted by 70% as of the timing of the production of this episode. Staff are being let go and hundreds of thousands of households are unsubscribing, with even more expected to leave in the coming year. In this episode, we'll take a look at how Netflix rose to the top, what went wrong and what could be the future. You are watching Told Fusion TV. Netflix was started in 1997 by Mark Randolph and Reid Hastings. The story of its origins is pretty interesting.

Starting point is 00:01:50 One day, Reed Hastings became annoyed when he got charged $40 by Blockbuster for returning a VHS tape late. Being a mathematician, computer scientist and entrepreneur, He believed he could create a better way. Later, while Reid was carpooling with Mark, they both were admiring the success of Amazon. They discussed their own ideas of shipping items over the emerging internet. They thought that VHS tapes were too fragile and expensive, so they settled on DVDs, which were brand new at the time. After a small test run of shipping DVDs to themselves, they decided to go for the idea,

Starting point is 00:02:24 and in that moment, Netflix was born, and the company soon grew quickly. Interestingly, Netflix approached Blockbuster in 2000 with a $50 million offer. Thinking it was a joke, Blockbuster laughed them straight out of the office. Blockbuster CEO, John Antiocho, believed that this whole dot-com thing was overhyped. Undeterred, Netflix continued to grow. Later, in 2004, Blockbuster realized their mistake and soon launched their own DVD rental service. Unfortunately for Blockbuster, bad management and excessive company debt led to its demise. In 2007, Netflix pivoted to online streaming as high-speed internet became more commonplace.

Starting point is 00:03:06 This proved to be the perfect move and things really took off for the company. We should remember that in the late 2000s into the early 2010s, the streaming platform model for consuming television and movies at home was considered revolutionary, and at the forefront of this revolution was Netflix. With a long head start, they were the first and only majorly successful platform for streaming TV shows and movies from a massive range of studios. There was enough quality content that consumers were happy to pay for it. $8 per month for Netflix versus $50 a month for cable was a great deal. At the time, it truly felt like a new error of media consumption. The Netflix model was so successful

Starting point is 00:03:49 that it changed consumer perceptions. Free-to-air content with advertising became insufferable. Bloated pay TV companies that once held a monopoly seemed outdated in comparison. Netflix kept growing and wasted no time spreading its wings. By 2010, it was available in the US, Canada, Latin America and the Caribbean. By 2012, it had made its way to the UK and Australia. Original content soon followed, with extremely well-received shows like 2013's, Orange is the New Black, House of Cards, Black Mirror, and later, Stranger Things. It truly cannot be understated just how exciting this time was for consumers. particularly those outside the US.

Starting point is 00:04:32 Netflix was a slick product, unrivaled. It is quite the success story, especially when you consider that Blockbuster was once Netflix's main competitor. Where one company embraced the change and led a movement of disruption, the other failed to adapt. Before long, Blockbuster were bankrupt, and Netflix became one of the most profitable companies on the planet, peaking at a valuation of $306 billion.

Starting point is 00:05:00 You cannot innovate and innovate, be successful for long before others take note of your idea. By the late 2010s, this is exactly what started to happen. At first, the competition was from similar startups, but before long, the mega corporations decided to throw their hat in the ring. Over the past few years, corporations would seemingly endless funds have started rolling out their own streaming services. For $5 a month, Apple TV Plus focuses on premium content, also for $5 a month. NBC Universal's Peacock took many US sitcoms away from Netflix. For $15 per month, HBO Max and blew critics away with new shows like Succession. And the biggest of all,

Starting point is 00:05:42 the tyrannical IP monster that is Disney, launched their very own Disney Plus, which took away all the remaining nostalgia from Netflix, as well as adding original content from the Marvel IP and other TV shows and movies. It was $12 a month for all of that. For context, a standard Netflix account is now pushing $16 per month, making it one of the most expensive options. We'll touch on how this is hurting the company later. But at this point in the story, through all of this added competition, Netflix was still number one and was in store for some big wins thanks to a massive event that was to come out of China. During the early stages of the pandemic, Netflix enjoyed a massive boost in subscribers, along with most other platforms,

Starting point is 00:06:26 despite its competition. People were stuck... Blend wellness into your coffee routine with the coffee plus range infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function, and coffee plus B6 to keep your day moving. Or go with the flow and choose ginseng delight. Our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning. Let your morning change you.

Starting point is 00:06:56 Discover coffee plus on espresso.com. At home, and there was a time when everyone was talking about Tiger King. Netflix gained tens of millions of new subscribers over 2020 and into 2021, and they became known as the King of the Stay at Home stocks, a category which saw massive investment. Even midway through 2021, Netflix were still gaining subscribers, but this would all change. As vaccines rolled out and the pandemic waned,

Starting point is 00:07:24 consumers were no longer homebound, and Netflix had a problem. Consumers spent over a year, sampling everything that each service had to offer, and now they were well informed to decide which ones they wanted to keep and which ones they wanted to get rid of. The increased quality and quantity of competition, the poaching of IP from Netflix,

Starting point is 00:07:42 and a slowdown in subscriber growth could only mean one thing. There was a reckoning coming for Netflix. In mid-April 2022, Netflix investors abandoned the company in mass. This was after it was revealed that the service had lost 200,000 subscribers globally in the last quarter and expected to lose millions more in the next.

Starting point is 00:08:06 The original estimate was actually growth of 2.5 million. This was the first time in a decade that Netflix had lost more subscribers than it had gained in a quarter. The news was a shock and immediately caused the stock value to drop by 35%. 50 billion US dollars of value was wiped out from the firm's valuation overnight. Scared investors had began to question, has Netflix peaked? In a letter to shareholders, the billionaire says, quote, while Netflix's business is fundamentally simple to understand, in light of recent events,

Starting point is 00:08:38 we have lost confidence in our ability to predict the company's future prospects with a sufficient degree of certainty. When you put his name onto a stock like that, a lot of people likely followed him right down to the drain. In total, by the end of April 2022, Netflix had lost over 70% of its value since its peak. Some Netflix investors are furious. In fact, some shareholders are so unhappy that they filed a lawsuit against the streaming company. They claim that Netflix's management misled them on the financial outlook of the company. Netflix has placed the blame for subscriber loss on several reasons. They cited increased competition, people returning to work, the company pulling out of Russia, and password sharing between households, the latter of which

Starting point is 00:09:23 they didn't actually mind in their earlier days. Of course, these explanations are absolutely valid contributions, but it's far from the whole Netflix story. Netflix cannot simply rely on brand recognition and lazy consumers sticking with what they know when other platforms are pushing new boundaries. There's a lot of content on Netflix, but sifting through and finding the gems is becoming more of an issue than it should be. When Netflix started, its exclusive content was remarkable, but now it really seems like much less of that is being produced.

Starting point is 00:09:57 Further to this, it also seems that Netflix users are... Coffee Plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like coffee plus B12 to help support immune function, and coffee plus B6 to keep your day moving. Or go with the flow and choose ginseng delight. Our new double espresso with ginseng extract. Whatever lies ahead, don't change your morning.

Starting point is 00:10:25 Let your morning change you. Discover coffee plus on espresso.com. Tiring of their favorite new series being canceled after one or two seasons, a common occurrence. Other complaints include an emphasis of late on more politically infused content, which generally doesn't perform well in any format. The pricing model of Netflix is also compounding the problem. Price increases are becoming more frequent.

Starting point is 00:10:49 For instance, a standard Netflix account in 2014 was just $9 per month, and now it's pushing 16, and this is increasingly unaffordable to many households. With inflation and interest rates rising, consumers, generally have less money to spend on entertainment, and Netflix is at the top of the list of things to trim. It all boils down to this. Why would consumers pay more for content that's slowly dipping in quality with shows that run the risk of being cancelled? The Netflix HD option is currently the most expensive streaming service available, and in this market, this just doesn't make sense anymore. This is all made worse by the confirmation that the brand will be rolling out

Starting point is 00:11:31 a cheaper alternative with ads. Ironically, this is turning Netflix into the exact same tired viewing experience that consumers ran away from in the first place all those years ago. During an interview with investors last month, Netflix CEO Reid Hasting confessed he had never wanted an advertising tier for Netflix. Quote, those who have followed Netflix know that I'm against the complexity of advertising and a big fan of the simplicity of subscription, and he goes on to say, that advertising is necessary for those who want a lower price.

Starting point is 00:12:04 This kind of behaviour screams at frantic concern. Layoffs have also hit the company, all of which do not scream a vote of confidence for Netflix. So things aren't looking good for Netflix, shedding subscribers, seemingly clutching at straws for revenue-raising ideas, laying off new staff members, and a plummeting stock value are all terrible signs. Even the Netflix executives themselves have predicted

Starting point is 00:12:29 that the coming months will be equally as challenging. So what's next? Will Netflix adapt and survive? Or will another company rise to become the king of streaming? Netflix's business was completely replicable, so it's not out of the question. But perhaps there's something lurking in the wider picture. Maybe right now we're in a scenario like the video game crash of 1983. We're in for a streaming crash.

Starting point is 00:12:54 Maybe there's just too many choices spreading consumers too thin, creating a market that's saturated and can't be sustained. As seen in the last episode with the catastrophic failure of CNN's streaming platform, we could be in the midst of a mini streaming bubble at the moment and just not know it. Ultimately, we have to wait and see what happens. In saying all of this, there's a high chance that Netflix has simply just had its time in the sun. It's reached its peak of profitability and any new changes to increase it will result in more subscribers shedding.

Starting point is 00:13:25 Whatever the case is, it's going to take some time to play out. maybe in the far future in an ironic twist, we might be talking about Netflix in the same vein as Blockbuster. By the way, in my podcast called Through the Web, I talked about how I thought the magnitude of the stock crash of Netflix wasn't overreaction. If you want to hear my deeper thoughts about this, and all things tech and business, head on over to the podcast. I post weekly and there's been some great feedback from some of you guys, so thanks for that.

Starting point is 00:13:53 Link will be in the description. Anyway, that's about it from me. My name is Dago and you've been watching Cold Fusion and I'll see you again soon for the next episode, which will probably be on the $28 billion lunar coin collapse. Alright, cheers guys. Have a good one.

ColdFusion - The Rise and Fall of Netflix (Investors Are Suing)

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