Can Netflix Avoid Becoming the Next Blockbuster Case Study

The New York Times, reported that for the first time in 10 years, Netflix lost subscribers, in the tune of 200,000 overall in Q1 of 2022. The punch line though is future forecast, where company expects to lose two million subscribers in Q2, leading to the share values to drop ~62% year-to-date. 

To be fair to Netflix and be critical at the same time, Netflix, has not found a good way to stop users from sharing their passwords. Whilst, it's quite possible to see registered users vs their unique IP addresses, it's quite plausible that users who use the service, is quite high compared to those who actually pay for the service. 

Hypothetically, if each of the 221 million Netflix subscribers have shared it with at least one non-paying customer, then Netflix revenue is almost 50% less than vs it should be and it's subscriber base is double (~440 million), including paying and non-paying subscribers. 

Additionally, Netflix, from its evolution from Redbox (a mail-in service) to purely an online, content driven, subscription based business model, is not unique to Netflix anymore. Content has now become the competitive advantage and value differentiator. This is another area, where Netflix has done itself a disservice. Many shows are cancelled post 1 or 2 seasons, leaving a bad taste with the customers. 

Whilst, Covid-19 may have provide a good couple of years to Netflix, many competitors were also spawned during this timeframe. Now the consumer has so many streaming options to choose from, such as AppleTV+, Hulu, YouTubeTV, Amazon Prime Video, Peacock, HBO Max and countless others. This list is even amplified by content providers who are completely free and making smaller investments in original content - for example, Amazon Freevee is a free service, supported with ads and is expanding with original content. 

Now the question is; How will Netflix avoid becoming the Blockbuster of today?

Blockbuster at its prime had the opportunity to buy Netflix, but passed. Blockbuster never considered Netflix and changing technology to shift its business models, and align with customer expectations. A company that loses its customer obsession as well as a competitive advantage, will fade and possibly become a HBS business case. So, the two area that Netflix needs to focus on are:

1) Become Customer Obsessive (Do what customer want and not the other way around).

Netflix, can take a page from Amazon Freevee and launch a second service, which is ad supported. Whilst the second brand carries the mothership logo, its not the same service. This will lead to multiple streams of revenue and not necessarily the cost, since the free app, could have similar look 'n feel of the main app. 

2) Leverage Technology to Innovate further.

Netflix has had many first in the Industry - Chaos Engineering was successfully incubated and matured at Netflix. They are also one of the first Enterprises to become a fully cloud driven company. Now using these technology skills, Netflix, should leverage the possible petabytes of data at their disposal, to learn from consumers and deliver based on customer expectations. It's not just about the user experience with the applications, rather developing personas that influence customer behavior. 

Lastly, Is Metaverse a missed opportunity? Can Netflix's one of biggest successes - Stranger Things series, leveraged the Metaverse to create a user experience, where the consumers could've experienced the events with the characters.

The good part is that Netflix is not where Blockbuster was i.e turning a blind eye to the changing landscape, albeit, if Netflix cannot maintain its competitive advantage, it'll surely end up the same as Blockbuster. Let's hope that is not the case.