Netflix's Worst-Case Scenario, One Year Later
It's the Great Correction anniversary, and looming threats to the business remain
A few weeks back, I was talking to a colleague about wrapping-up my Worst-Case Scenario series. In each installment, I’ve examined the vulnerabilities of the big-entertainment companies (so far, I’ve covered Apple TV+, Amazon, Disney, Comcast and Warner Bros. Discovery; meanwhile my worries for all of Hollywood were here. And every scenario got worse in 2022.) To be clear, these aren’t predictions: each analysis is meant to provide insight into the strengths and weaknesses of each company fighting to survive (and thrive) in Hollywood.
So far, I’ve avoided the buzziest — and formerly biggest — company, Netflix. (In terms of market capitalization, Disney has since surpassed it and Comcast including the cable biz is also bigger.)
My colleague asked if Netflix could even have a worst-case scenario. Wasn’t 2022 its worst case? Let’s recall: starting in January 2022, its end-of-year earnings report for 2021 missed its quarterly subscriber additions and the stock took a plunge. On April 19, 2022, reporting on its first quarter of 2022, the company reported subscriber losses and forecast losing another two million globally in Q2, shattering its fairy tale growth. The results were punishing.
In a sign of how big Netflix is, its stock plunge dragged down the entire sector. All the studio and tech stocks got hammered. But by year’s end, as former CEO Reed Hastings rode off into the sunset, Netflix had rebounded-ish (the stock is still 50 percent off its all-time high).
That aside, Netflix still can definitely have a worst-case scenario, one that’s even worse than what we’ve seen.
Since last year, it’s gone from the brash newcomer upending how things are done to… a cost-conscious entertainment company that features live-events and advertising? It’s basically moved into middle age, like a boring old studio.
Usually, I go through each company’s different business units, but Netflix just does streaming, and globally. The better way to look at Netflix is in terms of the big bets it’s made on streaming’s future.
In this article I will discuss:
The rising costs of Netflix’s subscriber acquisition.
How Disney’s reclamation of Marvel series may have skewed Netflix’s free cash flow numbers from last year.
The new gamble Ted Sarandos and Greg Peters’ strategy folks aren’t talking about
How many users are trying Netflix’s ad-tier and games.