Netflix is starring in its own coming-of-age drama

Reed Hastings took an uncharacteristic step last month and slashed Netflix prices in India by 60 per cent. The co-founder and chief executive of the streaming giant was pursuing a unique approach in the world’s biggest democracy, having previously hiked prices in the UK and Europe to support heavy spending.

It came amid pressure from rivals Amazon and Disney+ Hotstar – an Indian subscription streaming service which is ultimately operated by The Walt Disney company.

The success of Squid Game helped Netflix steady the ship in 2021, but challenges remain.Credit:Netflix

But while Netflix is grappling with a crop of rivals challenging its reputation as an entertainment disruptor that has seized millions of viewers from traditional broadcasters, its battles do not end there.

An internal staff backlash over jokes made about transgender people in Dave Chappelle’s Netflix special, as well as pressure from sceptical analysts to be more transparent over data is forcing Hastings to react.

The company behind The Crown is now showing all the foibles of a seasoned corporate, just as its subscriber growth is starting to stutter. Tom Harrington, of Enders Analysis, believes the potential for the business “remains enormous”, but its priorities are starting to change. “I think Netflix will approach pre-Covid like growth in 2022, but that growth will continue to be mostly outside of the US, UK and Canada,” he says.

“This is why the corporate narrative now concentrates on its non-English speaking content pipeline, its market-leading dubbing, subtitling and meta-tagging operations, which give the service a boost in those territories. The response from investors will depend on how much they mind about the tougher conditions in Netflix’s domestic market.”

Investor nervousness has already started to set in. About $US25 billion ($34.4 billion) was wiped off Netflix’s market value in April when shares plunged 11 per cent in response to slowing subscriber growth. The company added almost 4 million subscribers between January and March, missing expectations of 6 million. At the time Netflix said it expected growth to rebound once a new series of a string of popular shows were released, but pressure from its streaming rivals is evident.

Disney+ has amassed 179 million subscribers since launching in November 2019. Netflix, meanwhile, has attracted 215 million since it was forged in 1997. “We had those 10 years where we were growing smooth as silk,” Hastings said in April. “It is just a little wobbly right now.”

The ship has started to steady. In the third quarter Netflix hauled in 4.4 million subscribers – double the amount it achieved for the same period last year, in part down to the popularity of Squid Game. The hit South Korean dystopian drama has served as proof that Netflix is able to create new shows, with a global appeal, that can compete with huge franchises owned by Disney+, such as Star Wars and the MCU. But Netflix isn’t becoming complacent.

In September, Netflix bought Roald Dahl’s back catalogue, which suggests it sees a future where success comes from a balance of unique content and shows based on already popular intellectual property. Some would view this as another reactionary move, yet there is equal argument to suggest Hastings is merely smoothing the firm’s transition towards becoming part of the media establishment.

In November, the company started to publish viewing figures behind its biggest hits, marking a significant shift for Netflix which has come under fire for being too secretive. It has long argued that traditional audience ratings do not apply to the world of streaming, especially when it has no advertisers on the platform. Scott Stuber, Netflix’s head of original films, told The Hollywood Reporter in October that the company had been prompted by filmmakers and talent that “want to know that their movie got out there globally in a big way”.

The coming year will be a key test for Hastings’s streaming empire. Sustaining subscriber growth, avoiding regulatory scrutiny and keeping rivals at bay are a must for keeping investors onside as Netflix continues to spend big, despite moving beyond its disruptor status.

However, Enders Analysis’ Harrington believes the move pre-empts the prospect of tighter regulatory scrutiny. “The scaling up of Netflix’s operations in the past decade has been impressive, and its transition to becoming part of the establishment was intended,” he argues. “It has self-regulated through parental control, age ratings, while participating in local industry schemes and initiatives. These are the actions of a company that knows where it is heading will require greater regulatory and industry responsibility, and doesn’t want an abrupt transition when that is asked of it.”

While management may appear savvy, Netflix’s handling of the Chappelle saga suggests the executive team still has much to learn.

In October, co-chief executive Ted Sarandos was forced into an embarrassing climb down after defending Chappelle despite staff protests of accusations that the controversial comedian had been transphobic. Sarandos said his initial staff memo, claiming Chappelle had not crossed the line into inciting violence, had been “uncharacteristic”.

Disney+ is one of a plethora of streaming services that Netflix is grappling with. Credit:Disney

“Obviously, I screwed up that internal communication,” he said in an interview with Variety. “First and foremost, I should have led with a lot more humanity. Meaning, I had a group of employees who were definitely feeling pain and hurt from a decision we made. I didn’t do that.”

For Harrington, the Chappelle debacle shows executives have yet to fully embrace Netflix’s position as part of the media establishment: “The shift has potentially outpaced some of its tenets of management – the handling of the Chappelle situation being a case in point.”

The coming year will be a key test for Hastings’s streaming empire. Sustaining subscriber growth, avoiding regulatory scrutiny and keeping rivals at bay are a must for keeping investors onside as Netflix continues to spend big, despite moving beyond its disruptor status.

With Disney predicted to spend $US33 billion in 2022, Netflix’s $US22 billion program is at risk of being outgunned. It suggests more drastic action might be needed as Hastings attempts to guide the company towards financial sustainability. Overhauling prices is one lever, but the service will ultimately survive on the popularity of its shows – and that means coughing up more cash.

Telegraph, London

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