If you were to cast an eye on Netflix’s latest financial results, you’d be forgiven for thinking that everything was going quite well for the streaming giant.
The company took in revenues of more than $12.5 billion in the three months to the end of June. That’s up 13.4% year-on-year.
From that, it recorded a profit of $4.2 billion – about 11% higher year-on-year. Bear in mind, that’s a multi-billion dollar profit in a mere three months.
In the twelve months to the end of June, the company booked a profit of more than $14.3 billion.
At a time when traditional media companies are struggling to survive – and everything that isn’t a Nolan epic or a web-slinger is struggling at the box office – Netflix is absolutely raking in it. And how much it’s raking in is growing all the time.
And yet, the stock market is less than impressed with Netflix.
Its share price fell around 10% in the immediate aftermath of the results – they’re down almost 20% so far this year, and are nearly 40% lower over the past 12 months.
Stock shock
To a certain degree, Netflix’s predicament represents one of the absurdities of the stock market.
Its sales grew by 13.4% in the second quarter – which is a rate of growth most companies would dream of – but that’s slower than the 16.2% growth it recorded in the first three months of the year.
And the company expects it will ‘only’ grow by 11.7% in the next three months – so investors are eyeing a gradual easing in the rate at which the company is expanding. And they don’t like it.
We’ve seen this time and again – making billions of dollars in profits is good, but above all else markets value constant, strong growth.
If you’re not growing – and if your rate of growth is not growing too – then there’s a problem.
That puts Netflix in a particularly awkward spot given its position as, far and away, the global market leader in streaming.
It has around 325 million subscribers globally – and presuming each of those is, on average, accessible to two or three people in a home, it already has a sizable portion of the world on its books.
That means its headroom for adding more viewers is far more limited than its rivals – which in turn limits its ability to maintain rapid growth.
But the slump in Netflix shares isn’t entirely down to the markets’ insatiable lust for growth.
The fall-off does also point to broader issues at play for Netflix – which also pose a challenge to its leading rivals.
Slowing stream
One of the big headwinds facing Netflix right now is the fact that its so-called content pipeline isn’t looking as strong as it had in previous years.
It’s still well able to churn out plenty of shows, movies and documentaries – but how many of those are strong enough to lure in new subscribers – and keep existing ones – is less clear.
Stranger Things and Squid Games, which were two huge subscription drivers in the past, are both now finished.
Bridgerton is arguably one of the few franchises Netflix can now bank on to provide somewhat regular content that people will pay to see.
That dwindling pipeline was part of the reason why Netflix went hunting – unsuccessfully – for Warner Bros. Not only would that acquisition have given us plenty of archive content to pad out the platform, it also would have given it access to so many “universes” that it could be mined for future releases.
That includes – but is by no means limited to – the likes of Harry Potter, Game of Thrones, and DC Comics characters like Batman and Superman.
This question around what Netflix has to draw in and retain subscribers is also coinciding with the company suddenly becoming more cagey with some of its data – which has added to investor unease.
Netflix used to publish viewership data twice a year – which would tell you how many hours of viewership different shows got. This helped to show investors how engaged audiences were in its big releases.
But, from next year, it’s only going to publish that data once a year.
And that decision comes hot on the heels of the company stopping the release of quarterly subscriber numbers too – now it only does so when the number passes a key milestone.
Netflix argues that the revenue and profit figures are the most important for investors, but when a company starts to reduce how transparent it is with key metrics like subscribers and viewership, investors start to worry if there’s something they don’t know about.
Post-peak
Of course Netflix is still a huge player – it’s essentially made itself the default option in the streaming market – and few expect that to change.
While the share price is down, not many would bet on anything other than Netflix continuing to make billions of dollars a year for the foreseeable future – even if it fails to find new franchises to replace the likes of Squid Games.
However there is also a growing feeling that we are now past the peak of the streaming era – and what Netflix has to offer is now far less compelling than it was in its early days.
To appreciate that it’s worth going back to the start of this whole phenomenon and comparing it to where we are now.
Netflix launched in Ireland in January 2012, and at the time it cost €6.99 a month. In return you got access to a huge catalogue of content, ad-free – including plenty of classic TV shows and films.
At this time, of course, none of which was made by Netflix. It was all coming from established Hollywood studios who were only too happy to sell it to Netflix, because it until that point it was just sitting in their back catalogue gathering dust.
Back then Netflix didn’t even care if you shared your subscription with your extended family, friends and distant acquaintances – because that meant it had even more eyeballs racking up viewership hours.
So, it was a great deal – especially if it offer an alternative to the €20-30 you were paying each month for a satellite or cable subscription.
But fast-forward to today, and the deal doesn’t seem quite so good.
Nowadays Netflix now costs €11 a month. That’s for a standard definition stream on one device.
A standard plan costs €17 – while bigger households may need to spend up to €24 for a premium plan.
In return for that you are, arguably, getting far less too.
You’re no longer able to share your subscription with another household, for example.
And while there’s loads of content – probably far more than before – the quality of a lot of it is debatable at best. That’s in part because most of the other studios realised years ago Netflix was profiting off their content, and they’ve since decided that they wanted to try to take that money for themselves.
That means that, today, a viewer who wants to make sure they can see all the big hit shows and movies will need to pay for Netflix as well as Disney Plus, Amazon Prime, Paramount Plus, HBO Max, Apple TV and Now TV.
Doing that would set you back €61 a month – and that’s just for the basic packages of each of those services. (It’s also presuming you’re not interested in some of the real niche platforms like Hayu, Mubi or Crunchyroll).
In reality most people just aren’t willing to do that – and at a time when everyone is watching their outgoings that bit closer than before, customers are increasingly asking themselves if they actually need to be signed up to these services in the first place.
Even where there is content worth watching, many are opting to cycle through the platforms – only signing up to one when there’s a new, worthwhile release, and cancelling their account once they’ve watched it.
Ad nauseum
At the same time, there’s growing frustration with the actual service streamers now offer.
One of the big selling points of streaming in its early days was that it’s ad-free – but now they’re beginning to creep into view.
Disney Plus started showing ads on its basic package earlier this year – Netflix is going to do the same next year.
Their argument is that ad-supported subscriptions offer a cheaper way for people to watch – and there remains the option of paying more for an ad-free version.
But it’s still a far cry from the promise streaming once offered.
And while Netflix revolutionised TV by releasing all episodes of a series at once – and letting people binge it at their own pace – now we’re seeing multiple episode ‘drops’, and even weekly releases, become the norm. That’s happening for the simple reason that drip-fed releases tend to keep viewers subscribed for longer.
All of that combined means that streaming is rapidly starting to look like the old TV model it promised to liberate us from.
And maybe, in some ways, it’s actually turning into a worse version of traditional TV.
Because in the olden days of regular TV, a major US drama or comedy series might run for 22 or 24 weeks before taking a break. And it would generally return with a new season a year after the last one.
Now many streaming shows are putting out a shorter seasons – maybe 11 episodes, or 9, or as few as six. And then viewers could be left waiting years for the next batch.
The lifetime of Stranger Things is a good representation of this elongating release schedule.
Season two of Stranger Things came out about a year after the first – but then there was around an 18-month gap before season three. Then there was a three-year gap to season four, followed by a three-and-a-half-year gap to season five.
Not good for the audience (and probably not good for the production team that had to manage the show’s child actors becoming adults).
A blockbuster like Stranger Things could get away with that delay – but it seems to be having a huge impact on viewership of smaller shows.
The first series of Netflix’s Beef, for example, was well received in 2023 – but season two didn’t come along until this year, three years later. It’s estimated that its audience dropped by around 60-70% in the process.
The theory being that viewers of season one had lost track, lost interest or simply moved on by the time season two came along.
Another problem that’s plagued streamers is how quick they are to cancel shows before they have time to develop or wrap up storylines.
Of course traditional broadcasters have been guilty of this too – but there’s a feeling streamers do it far earlier and far more arbitrarily.
That’s also impacting viewership – because people are going to be less inclined to get into a new show – especially a sprawling epic like Game of Thrones or Breaking Bad – if there’s a good chance they’re going to be left hanging without a resolution.
The irony there is that, if people don’t want to start watching a show until they know it’s going to run through to its conclusion, there’s a bigger chance it will get cancelled before its time.
A pirate’s life
Those that remember the days of Napster, LimeWire and Pirate Bay will remember what a massive issue piracy was for the film, TV and music industries. At the time it was pitched as an existential crisis for the entertainment industry.
And while part of the response to that was a legal clampdown, the rise of streaming was also key to overcoming the problem.
In 2011 gaming entrepreneur Gabe Newell argued that piracy wasn’t a price issue – it was a service issue. His point was that people generally weren’t pirating work because they weren’t willing to pay for it, but because it was too hard or cumbersome for them to get legitimate access to it in the way that they wanted.
Video streamers like Netflix and Amazon, and music platforms like Spotify and Apple Music, seemed to prove that point. Here you had easy-to-use, ad-free services for a reasonable price. They were actually easier to use than pirate services, and there was no risk of users downloading a virus or spy wear.
So, many people stopped pirating.
That’s not to say that piracy disappeared – but it did decline significantly.
In 2012 music industry revenues rose for the first time in a decade thanks to streaming. In the same year visits to file-sharing sites reportedly fell by around 17%.
By 2020 visits to piracy sites had hit a low of 130 billion a year, according to piracy monitoring group MUSO. That was back when Netflix cost as little as €8 (€12 for a standard plan) and there weren’t too many platforms competing for your eyes and euros).
But by 2024, visits to piracy sites had bounced back up to 216 billion.
Those are piracy sites too – it’s not clear if that would include activity on so-called dodgy boxes, which as we know have become a significant factor in recent years.
What is clear, though, is that as the cost of streaming has gone up, and as it’s become harder for even paying customers to get access to all the shows they want, it’s coincided with many people seeing piracy as a valid option once again.