Front Burner - Why people are bailing on Netflix

Episode Date: May 3, 2022

For the first time in more than a decade, Netflix announced it has lost 200,000 subscribers globally, and the company says it may lose as many as two million more in the months ahead. But that loss doesn't just signal a change in how Netflix does business — it has ripple effects on streaming services everywhere and sends a strong message about how and what we want to watch. Today on Front Burner, we talk to Alex Weprin, media and business writer with The Hollywood Reporter about how the streaming wars could affect what you'll be watching next.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hey, I'm Jamie Poisson. You may have seen the headlines recently that streaming behemoth Netflix is bleeding subscribers for the first time in over a decade. Maybe you're one of the 200,000 who already left the service in the first part of the year, or one of the two million the company is expecting will walk away in the next few months.

The entertainment news site Variety is calling it the end of the Netflix and chill era. Today, I'm speaking to Alex Weprin, media and business writer for The Hollywood Reporter, about why Netflix is losing eyeballs and what it means for what we get to watch at home. Hey, Alex, thank you very much for being here. Thank you for having me. So Netflix is still number one when it comes to streaming services. They've got more than 220 million subscribers worldwide, so nothing to sneeze at here. But before we get to the recent losses, I wonder if you could tell

me how Netflix became so dominant in the first place. They really had a first mover advantage when it came to streaming. Other companies had streamed video before, but Netflix kind of leveraged their old business, which was mailing physical DVD discs to people. What's going on here? We are the foreign film from Netflix. You return the action movie and my film was on your list, so they automatically sent us out. Duh!

To kind of build up a big library of films and TV shows that they were allowed to stream online. And they were the first company to really take all of those pieces, all those films and TV shows and movies and other content, and put them together in one place and one compelling offering. Oh, hello. I'd like to tell you about Netflix. It's an amazing service that lets you watch unlimited movies and TV episodes instantly. You watch Netflix on your PC or on your TV through a game console or other devices connected to the Internet. Well, that's class.

Best of all, Netflix is only eight bucks a month. But don't listen to a beaver. And that gave them a huge head start and kind of really kick-started their growth. And that gave them a huge head start and kind of really kick-started their growth. So now for the first time in a really long time, they're actually losing people. And has that come as a surprise to people who watch this world? Yes. Netflix and most other big entertainment companies thought that they'd be growing for a long time. In the business world, there's a concept called

TAM, total addressable market. The idea is you want to figure out what is the maximum number of people that will buy your product, whether it's a car or a new fast food item or a streaming service. You want to game out how big it could possibly be. And I think the ambitions for streaming were in the hundreds of millions and possibly billions of people. And Netflix seems to be hitting a wall, as you said, just over 200 million people. That's a lot lower than they thought it would be. And even if the streaming grows from here, it may be growing at a much slower pace than they anticipated. growing at a much slower pace than they anticipated. I want to dig into some of the reasons why you think that is now. There's a fairly obvious one. I know Netflix withdrew its services from Russia in opposition to the war in Ukraine. The list of big name companies cutting ties with Russia

grew longer on Wednesday. Among them, Netflix has paused new projects in the country while fashion outlet H&M. That's not the only thing going on here, obviously. So let's start with the big one, all this competition. What effect do you think that is having? Yeah, I mean, Netflix for years had kind of waved off the concept that, you know, other streaming services were eating into their subscriber numbers. And they no longer stick by that script this past quarter they acknowledge that yes other services are beginning to kind of take our subscribers away

uh you mentioned russia that cost them you know i believe 700 000 subscribers not nothing but not a huge number in the grand scheme of things instead what you're seeing is people are choosing to subscribe to HBO Max. I've never, ever been happier. Amazon Prime Video. I love you. It'll pass. Or Apple TV+. Well, every time you find yourself here, it's because you chose to come back.

Or any one of these many other streaming services that are available around the world instead of Netflix, or they're churning in and out of Netflix and these other services, kind of moving from service to service. I have to admit when Netflix recently said that they were going to raise prices and crack down on password sharing, I did think to myself, I can't have all of these services. It's too expensive. So maybe Netflix can be the one to go. And do you think that's like a popular sentiment right now? Yeah, absolutely. Netflix has raised prices many times over the years. They really haven't had a huge hit to their subscriber numbers, but that

did seem to happen this time around. And it's partly because Netflix is among the most expensive streaming services right now. And that has been a problem for them trying to enter into emerging markets like India, where the cost for entertainment is much lower. And then, as you mentioned, password sharing. You know what always cheers me up? Netflix. It's great, especially since it's free if you use your band leader's username and password. Thank you, John. Thank you. Netflix has always taken a very laissez-faire approach to password sharing,

kind of encouraging family members or friends to share passwords. And I think they're recognizing that, you know, there's so much password sharing going on that it's actually hindering their ability to get people to subscribe. So I think both of those are things they're trying to look at to try and, you know, take some of those subscribers back, get them onto the service on their own accounts. The other thing I was thinking about is like Amazon prime and apple tv they're kind of bundled

up with other things hey so so like maybe they're a little bit harder for people to cancel those you know the benefit that amazon has that apple has is that they have this huge ecosystem you know backed by amazon and apple these tech. And that helps their video business and their video business helps the rest of their business. It's like in corporate terms, there's a term called the flywheel where one side of the business can help another side that kind of works in a virtuous circle. In this case, Amazon Prime, it includes two-day shipping, it includes music, it includes video, it includes eBooks. There's a lot included in that. And so even if you don't watch any video, you may find it compelling enough to subscribe.

Maybe you find the video itself so compelling that you don't even care about the free shipping. And so these things work together. And the result is that you see a lot less churn, which is the term when someone can kind of subscribe or unsubscribe from a service whenever they want pretty easily. You see a lot less churn with these services, where you're baked into this larger ecosystem, where with Netflix, you know, it's very easy to subscribe, it's easy to unsubscribe, and the only offering is their content. As good as it is, if you don't find anything you don't want to watch, there's really no reason to pay. All these competitors also influence the shows and

movies that Netflix can license and host on their platform, right? Like, obviously, Disney isn't going to let a competitor air their stuff. Disney owns a lot of stuff, Marvel, Lucasfilm, Pixar. And so could you talk to me a bit more about the impact that that's having on Netflix? So, you know, Netflix in its early days really built their service off of this licensed content. You know, they had Disney programming, they had NBC Universal programming, they had programming from CBS now called Paramount. They had all this content they had licensed through these DVD deals. And in fact, a lot of these companies will tell you that they believe Netflix built their streaming business off of the back of their content. And so what's happened is that these

companies realize how valuable those libraries of content are, and they've taken them back to launch their own streaming services. And the result is that Netflix has really had to invest in their own original content, which is a lot harder and a lot more expensive and a lot more time consuming to do. It's not cheap, but it's pretty easy to just license the entire library of friends. All Ross is doing is watching TV bit. Or the office. It's so easy, Ryan. Do you really not know how Netflix works?

To cite a couple of classic sitcoms. Yeah, and they're losing friends, right? They're losing friends. They've lost friends. They've lost office. They've lost, they have acquired Seinfeld. So they've kind of mixed and matched occasionally, but you know, really they're in a tough spot because it can take many, many years to develop a brand or a show like those. And they don't have that much time right now. And these shows that would give you a reason to subscribe. I think about the shows that I've watched and talked about lately. It's We Crashed, it's Dope Sick, it's Succession. I'm a sturdy birdie. That's right. Say it three times before the cock crows, brother. Cock-a-doodle-doo.

Which basically was the subject of every Monday meeting at work I had for months. three times before the cock crows, brother. Cock-a-doodle-doo. Which basically was the subject of every Monday meeting at work I had for months. None of these shows are on Netflix. Obviously, that's just my taste. But bigger picture, do you think the content that Netflix is putting out could be part of the problem here? You hit on something that a lot of people in the entertainment world are talking about right now, which is that a lot of the buzziest content is not on Netflix. It's on HBO Max. It's on Apple TV Plus. It's on Amazon Prime Video. The result is that Netflix is kind of associated with safe, perfectly enjoyable content, but maybe not the most compelling buzzy content that everyone thinks of when they think of prestige television. perfectly enjoyable content, but maybe not the most compelling, buzzy content that everyone thinks of when they think of, you know,

prestige television. Like a very popular show on Netflix right now is called Is It Cake? You are all here because you are all talented at making cakes that look like everyday objects. That is cake. And now that incredibly specific skill can earn you thousands of dollars.

Wow. Exceptional. I get to ask the best question ever. Is it cake? Which is just a game show where bakers have to determine whether something is cake or a regular household object. It's doing very well for them, but it's not succession. And I think, you know,bo has kind of leveraged their brand

it was super high quality premium television to streaming very well and apple tv plus has kind of taken a similar approach trying to be like the hbo of streaming yeah and netflix early on they were kind of pursuing that strategy with house of cards it's not beginning the story that i fear it's not knowing how it will end But recently they've really leaned into kind of more casual, fun, less high profile content. I don't like two-faced people. And I'm not saying you are two-faced, but it's going that direction. And I was like, oh, wow, you were super nice to her. But then you didn't actually tell, like you were very supportive to her.

So I was like, oh, wow, like at least I'm like direct, you know, like. Wow. That was a lot. Okay. Yeah. Selling Sunset, that new luxury real estate in Paris one, which I have to admit, I did start watching. There are some very beautiful apartments in Paris, but it's not, it's not going to get you an Oscar. life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years.

I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Cups. Netflix's CEO has said the company is now super focused on, quote, getting back into our investors' good graces. And I wonder what you think this could mean for the kind of content that they're going to be investing in now.

You know, my interpretation of that was that they're just going to be far less freewheeling when it comes to spending money. They're going to be more picky when it comes to greenlighting new shows and movies. They're going to be a little bit more careful when developing a marketing campaign for a new show. Netflix had a reputation for years of being very freewheeling and free spending with their dollars. There was, you know, there was no budget too big and no budget too small, they wouldn't take if they thought it was great. I think those days are over. I think going forward, executives are going to have really have to make their case for projects. And that's a sea change for the company. Do you worry that's a recipe for more

of the wildly palatable, but potentially like a bit bland content? That's, that's, that's a real question that everyone's asking, you know, are they going to try and have fewer projects, but higher quality projects like you have with HBO or Apple, or are they going to lean into these less expensive, but perfectly enjoyable projects? Like, is it cake selling sunset? Um, and I, you know, I don't think we can say for sure yet. And that's what I think a lot of people in Hollywood are going to be paying close attention to in the coming months. I have to say, I've, after this interview, I'm going to go downstairs and turn on is it cake,

because I really want to know what this is. We'll not be able to tell if it's cake. And another thing I wanted to ask you about, and get your thoughts on is that i know that netflix has had kind of a reputation for disappointing loyal fans by like axing shows after two seasons people were very ticked off they just canceled the babysitters club the oa um i know they have this really mysterious internal algorithm, internal data and metrics. But do you also think that this is a problem for them too, because they lose loyal fans? It's not just a problem in terms of losing fans. It's also a problem in terms of losing talent

and losing creators and actors. Netflix, as you said, has this vast trove of data. Very little of it is public. We know only the most basic of information about viewing minutes or hours and accounts that stream a show. And that is the same for many of the creators of these shows who get very basic data from Netflix and not much more. And we've certainly heard from a lot of talent associated with Netflix that have not been happy with the explanations for why the shows have been canceled. They have their data and they have their reasoning and they hold it close to vest because they don't want competitors stealing that information. But it's not been great for their relationships with talent.

And so the risk there is that you not not about, it's not always about algorithms, it's also about relationships. Yeah, as this platform that has dominated the streaming world for so long, if Netflix is hurting, what does that mean for all the other streaming services? long. If Netflix is hurting, what does that mean for all the other streaming services? The result was that every other streaming service from every other company is beginning to reevaluate their business and their expectations. A lot of them thought that at minimum, they could get to what Netflix had. And I think that with Netflix kind of hitting a ceiling, they're all beginning to reevaluate that and wondering whether maybe their movies should really lean into movie theaters again and theatrical. Maybe they should consider debuting their shows on their linear cable or broadcast networks and then bring it to streaming later.

Everything that they had done to kind of reevaluate themselves and reorganize themselves to be streaming focused is coming under question again. Netflix is kind of the first company to kind of hit the ceiling. And I don't think they're going to be the last. And every other company in the space is going to be watching what happens very closely. Do you have a sense that not all of these companies will be able to survive the so-called streaming wars? I mean, it's likely that, so Deloitte had a study that showed that consumers on average will only want to subscribe to about four services at a time. Four is not a lot. There's a lot more than four out there. And so there is not an expectation that every single service will

survive. Now, these companies that produce content, they'll probably find a way to survive. They maybe will sell their shows to other streaming services, or, they'll probably find a way to survive. They maybe will sell their shows to other streaming services, or maybe they'll just lean back into pay television and go to that route. But the future when it comes to streaming specifically, it's just not clear how many can survive and how much room there is for these big, broad competitors that have a wide array of content similar to what Netflix has. And I've also read that they're interested in live sports and gaming. And could you tell me about how that might play into this?

So, I mean, that's the one thing that these streaming services are looking into to try and differentiate themselves outside of the entertainment world. Netflix is really investing big in video games. They've acquired three game studios in the last six months. They're investing billions of dollars in it. They want to become a major player in video games. They've acquired three game studios in the last six months. They're investing billions of dollars in it. They want to become a major player in video games, and they're betting that adding games to that subscription can kind of bring back that growth alongside the advertising-supported tier. Meanwhile, some of their competitors, they're going in big on sports. Amazon this year is going to have exclusive rights to

Thursday Night Football. When the sign on the window is finally turned back on, because Thursdays only on Prime Video, football is open. Apple has a deal for Major League Baseball games. So they're all kind of beginning to experiment with sports, which is a very sticky type of content that people typically want to watch live. And so these are other areas beyond entertainment, beyond on-demand entertainment, that these companies are beginning to explore and are hoping that maybe can kind of turn things around and bring more people into the ecosystem that were reluctant to subscribe otherwise. It's funny, but a bit depressing that Netflix totally upended the

traditional television model. But now there's talk of going back to advertising. Yeah, I mean, in some ways, I think a lot of people in the business and the advertising world would tell you it was inevitable. Because advertising is simply too important a business to ignore. And every other most of the other streaming services built their businesses off of advertising. And Netflix for years said they don't want to do it. They didn't think it was good for consumers. It wasn't their core business. And now here they are saying, yeah, we're going to do it.

But if you look at the current landscape where they hit this subscriber ceiling, offering something that's significantly cheaper but with ads could be the ticket to kind of bringing that growth back. Even if you still keep that ad free option available. Yeah. Alex, thank you so much for this. This was super fascinating. Thank you. Thank you. Okay. My pleasure. pleasure. All right. Thank you so much for listening to Front Burner. I am going to go watch Is It Cake? See you tomorrow. Oh yeah. Oh my God. It like really, it's really hard to tell if it's cake. That cake looks like a duck. Okay.

Bye, bye, bye.