Despite a lot of rhetoric by customers about how they were sick of Netflix price hikes and headed to the exits, the company’s latest earnings report showed impressive growth. The company added 13.1 million customers worldwide in the fourth quarter, up from the 8.76 million added the previous quarter. All told, the once-disruptive streaming upstart now has 260.8 million customers worldwide.
Netflix likes to vaguely imply (and the press likes to parrot without evidence) that much of the growth came courtesy of its unpopular crackdown on password sharing (a practice Netflix once encouraged). In reality, Netflix can’t (and doesn’t) really track how many customers signed up due to the crackdown. And most of the 13.1 million in growth came from Europe (it added 1.2 million subscribers in the States).
A much more likely contributor to Netflix’s continued growth? The company’s ongoing embrace of cheaper ad-based subscription tiers, which are particularly attractive to folks without oodles of disposable income who don’t really care about things like HD or 4K video quality. The company says it now has more than 23 million monthly members subscribed to the cheaper (for now) ad-based tiers.
It’s fairly obvious that Netflix won this phase of the streaming TV wars.
Here’s the thing: as subscriber growth becomes saturated, Netflix has to keep providing Wall Street with those sweet, improved quarterly returns at any cost. To do that they’re going to follow directly on the heels of the cable giants (like Charter and Spectrum) the company once disrupted. That means more and more price hikes, and greater and greater restrictions and annoyances.
Netflix is already preparing investors for a new round of price hikes this year. It’s also eliminating its cheapest ad-free tier, adopting the longstanding Comcast practice of luring you in with one price, then steadily upselling you to more expensive tiers. That’s in addition to the password sharing crackdown, which is basically double dipping (since Netflix already charged more for more simultaneous streams).
As the company tries to please everyone, everywhere and cater to the lowest common denominator at scale, the company’s catalog also starts to have less high quality original content and more derivative dreck a la USA Network or TNT in a bid to cut corners:
“Netflix’s days of chasing prestige might be rapidly coming to an end with this sharp reversal of the streaming golden age replaced by something akin to Spike TV circa 2005. Or USA Network circa 2011.”
So lower quality, greater volume, higher prices, more restrictions. That’s the exact hole companies like Comcast fell into from the 90s into the early 00s. For public companies it’s not good enough to provide a quality, affordable product people like. You have to see consistent quarterly growth; and once the market for streaming saturates, you have to seek that growth out in creative (and obnoxious) ways.
Clearly that transformation from innovation and disruption to lazy turf protection will take a while. Based on growth numbers, Netflix obviously still provides great value to folks. Streaming customer service and satisfaction data still well outperforms cable TV. And when it comes to streaming, unlike cable, it’s still easy to binge watch Netflix’s catalog for a month then cancel with relative ease.
But if this follows cable’s trajectory (and there’s really no reason to think it won’t since executives in the streaming space have made it clear they learned absolutely nothing from Comcast’s run in with cord cutters) I think there will be several clear hints that Netflix has started to truly jump the shark.
I suspect that you’ll start to see more quality control issues and a notable decline in customer service, usually the first thing to be sacrificed on the altar in the quest for growth and scale.
You’ll see more and more examples of the upward pricing funnel where basic features are hidden away in more expensive plans (see: Verizon Wireless forcing you to pay more for HD, or Comcast imposing pointless usage caps you have to pay extra to bypass). You’re already seeing that at Amazon, where they introduced new ads then charged Prime customers paying $140 annually extra to bypass them.
You’ll also likely see a steady uptick in the volume of ads, the creation of obnoxious bullshit fees (household quality streaming priority surcharge!), and eventually, Netflix will likely make it a pain in the ass to cancel service. I know this because I’ve covered media and telecom in a country with sagging regulatory oversight for decades, and all the financial incentives always point in the wrong direction when it comes to the near-mindless pursuit of unprecedented scale and never-ending growth.
Again we’re not there yet, and there’s clear evidence that customers remain largely satisfied with Netflix service. But the writing is pretty clearly on the wall. As the quality sags, the restrictions emerge, and the prices steadily creep skyward, more and more users will shift to free services (YouTube, Twitch, TikTok, or piracy) something streaming execs will blame on absolutely anything and everything but themselves.
