Ian Thomas Malone

A Connecticut Yogi in King Joffrey's Court

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October 2014

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Breaking Down the Netflix Stock Drop and What Needs to Be Done Moving Forward

Written by , Posted in Blog, Pop Culture

Netflix’ stock took a tumble yesterday despite impressive growth in its third quarter earnings. There are two obvious reasons for this that stand out. The timing of HBO’s announcement that a separate subscription for HBO Go will be available in 2015 is certainly not a coincidence. Netflix personally attributes the stunted growth to the dollar price increase, which has merits especially considering the Qwikster blunder of 2011.

We live in a time of tremendous growth for the streaming market as a whole. Channels like FX are dedicating large portions of their ad space toward pushing their streaming services. Amazon has original programming that’s starting to garner mainstream attention. Even Yahoo has entered the fray.

While Netflix might have the largest piece of the pie and there’s little reason to think that another service will take over as king of the hill, it’s clear that being king of said hill means less than it once did. It’s not too different from the smart phone market, which is still lead by Apple but faces much stiffer competition in the year 2014 than 2007.

But what does this mean for Netflix? The service has increased its original programming department, but still relies heavily on older content to appease its viewer base. We’ve seen this recently with their increased ad campaigns promoting debuts of Gilmore Girls and Friends, which have been off the air for quite some time. Supplementary programming is necessary for every service, especially the ones that launch entire seasons at once.

There are two questions that need to be asked. The first is whether or not Netflix is doing enough to please its current subscriber base. An expanded original programming department has worked wonders as House of Cards and Orange is the New Black have established Netflix’ status as a legitimate contender for awards season and have supplied the company with an impressive amount of buzz.

But that’s only for two days out of the year for publications plus however long it takes viewers to get through the seasons. For binge watchers, that might actually be only two days. Other shows like Hemlock Grove and Bojack Horseman don’t carry the same amount of widespread appeal. So then what?

That’s why Netflix has so many other shows to watch. But for people who have cancelled cable and only use Netflix, is that really enough? The increased emphasis on original programming comes with exponentially higher costs than acquired content. Which means that Netflix doesn’t acquire as many shows as it once did to help make up the difference. That’s almost to be expected as there are only so many shows out there. Amazon has a fair amount of exclusive contracts of its own with shows like The Good Wife, Justified, Broad City, and Awkward, cutting into the available pool of shows.

Netflix raised its price in an effort to dissuade people from canceling their subscriptions after watching shows like House of Cards or OITNB. But that’s only a dollar. It’s conceivable to suggest that a person could watch their fill of Netflix’ offerings in a two month span, especially if they had subscribed in the past or have a DVR. Cable providers have increased their on demand offerings, making it more plausible for TV aficionados to live with Netflix than it has been in the past.

The second question is whether or not Netflix is doing enough to attract new subscribers. Unlike the first question, which depends mostly on the viewer, this is a clear no. With years of mainstream advertising under its belt, it’s hard to argue that there are many people in America who don’t know about Netflix or haven’t at least considered getting it.

Now there are external factors to consider. Houses with poor wifi are less inclined to pay for streaming services. There’s also houses that simply can’t afford it at all. But what about the people who just simply said no?

Let’s look at Friends, which is Netflix’ big grab to start of the year 2015. Friends is a beloved show that embodies the 90s and will certainly be one that users will want to check out. But are there really that many people who are going to subscribe because of Friends? The show is still on TV multiple times a day and has had numerous box set re-releases that have been quite popular. It’s hard to make the case that there’s that many people out there desperate to watch Friends who can’t find a way already.

Which is Netflix’ underlying problem. Tens of millions of people have it and enjoy it. But tens of millions of people have thought about getting it and decided not to. Further more, people who have gone through their library have decided to take a break and aren’t being given much incentive to come back except for two months out of the year.

The streaming competition isn’t going to get any lighter in the coming years. Netflix is a pioneer and continues to offer top tier original programming. But the company cannot forget that growth is best maintained by a continued commitment to original programming and consistent quality acquisitions.

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