Ad-Based Netflix Arrives, But It’s A Bit Of A Mess

from the from-disruption-to-turf-protection dept

After years of explosive growth, Netflix lost nearly a million subscribers between April and July of this year. In part due to new competition in streaming, but also because Netflix executives are stuck in this auto-cannibalism loop; sacrificing what’s popular about the service (affordability, no ads, few weird restrictions, decent content) to feed Wall Street’s insatiable need for quarterly growth.

So a company that was once a disruptive pioneer has started acting more like the companies it once disrupted, including nickel-and-diming its users about sharing passwords with people outside of the home (despite the fact Netflix had already instituted a blanket price hike, and already restricts the number of simultaneous streams per account unless you pay more).

Netflix is also hoping to lure back some customers by copying some of its competitors and introducing a new $7 a month ad-based tier. Though there are already numerous caveats.

Ad-based customers won’t be able to stream in standard HD (all streams will be restricted to 720p), won’t be able to stream to more than one device simultaneously, can’t download films to watch on a plane, and will see a 10% smaller catalog overall due to licensing constraints. The ad-based tier also isn’t supported on a number of different hardware platforms, including Apple TV or older Chromecast devices.

An ad-based tier might goose low end subscription numbers in the short term, but it’s not going to cure what’s causing broader defections. Customers are leaving for competitors because Netflix’s catalog quality has deteriorated, the price for the service has gone up, and company executives are increasingly looking to nickel-and-dime subscribers in a way that’s reminiscent of traditional cable (again, see its clumsy password sharing crackdown or the company’s flip flop on net neutrality).

Such is the life of an innovator turned turf protector. Wall Street demands what it demands, and it’s not simply good enough to have a quality product that people enjoy. You have to provide increased quarterly returns at any cost, and that cost is almost always borne by customers or employees in the form of layoffs, price hikes, half-cooked ideas, lower quality support, lower quality service, and weird new restrictions.

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Companies: netflix

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Comments on “Ad-Based Netflix Arrives, But It’s A Bit Of A Mess”

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Christenson says:

Re: In the long run, no...

That is, while there are a few companies still around from before 1900, all of the really big ones are at best shadows of their former selves.

The leveraged buyout exacerbates the problem. Twitter was a perfectly solvent company, and Elon has come along, borrowed a bunch of money to buy it, and saddled twitter with more debt than it can pay off.

Anonymous Coward says:

Re: Re: Re:

iCraveTV was a Canadian website, which operated from 1999 to 2000. The site offered streaming Internet broadcasts of the conventional television stations, both Canadian and American, that were available as over-the-air signals in Toronto.

The site […] was intensely controversial during its short lifespan, raising significant questions around the interpretation of copyright law. […] Although it was in operation for just three months before shutting down, the site had the effect of pressuring both Canadian and American television networks to start streaming their own programming directly on the web, and thus played a disproportionately prominent role in the development of the web as it exists in the 21st century.”

Netflix launched streaming in 2007. They did a ton of engineering, business development (to get copyright holders involved), and popularization, but they weren’t really doing anything new. They just did it better and didn’t get shut down.

PaulT (profile) says:

Re: Re: Re:2

That’s a stupidly reductive argument, though. There’s almost no successful business that literally came out of the gate with a new idea that nobody had ever done before. The vast majority build on ideas by others and innovate with the way they deliver the product or build a customer base.

I understand why you might feel the need to insist that your localised service get recognition for its footnote in history that may have paved the way for Netflix (though that seems to be a stretch), but if you’re going to claim that no company that built on previous ideas can be a true innovator, then you’re saying that there are no innovators.

I mean, iCraveTV, by your standards, surely just built on the idea of internet radio that had existed for many years before but used it for TV instead of music, right?

Anonymous Coward says:

Re: Re: Re:3

There’s almost no successful business that literally came out of the gate with a new idea that nobody had ever done before.

“New” is literally in the definition of innovation. Despite all your words, you mostly avoided original question: what did Netflix do that was innovative? What was new about “the way they deliver the product”?

I mean, iCraveTV, by your standards, surely just built on the idea of internet radio that had existed for many years before but used it for TV instead of music, right?

Sure, one could make that argument. I don’t know where to draw the line, and I’m not saying which side Netflix or iCraveTV are on. I just think it’s weak to just vaguely call a company “innovative” on gut feeling, rather than mentioning particular things seen as innovative. Without mentioning specifics, how can anyone have a useful discussion about it?

nerdrage (profile) says:

Re: Netflix's real problem

Netflix’s core problem is that it’s maxed out North America, where they can charge the most. The big growth is now in Asia, where revenue per user is about half North America. So to make up the shortfall, they are trying all sorts of stuff, ads, password sharing crackdowns, selling merchandise, sacrificing a goat under the full moon, whatever.

It’s not just Netflix either. Disney just added 12M subscribers for the quarter but is that good enough? Naw. They also spent a lot of money on content to attract those subscribers, plus broadcast and cable are dying so that revenue is slipping badly, and the numbers were no good. Disney stock tanked as a result.

Streaming is a rough business to make money in, that’s the bottom line. You spend billions and charge peanuts to chase cheap churn-prone customers all over the place and they still churn just because they got bored.

Somebody will make it work and Netflix is likely to survive okay. Disney too. Amazon and Apple are insulated. Warners/HBO Max…maybe. The rest, no way.

PaulT (profile) says:


“Wasn’t a huge part of that subscriber loss when they left Russia?”

Yes, plus the loss due to new competition and some people just not streaming as much once lock-ins, etc. had finished. IIRC, the following quarter they actually reported an increase in subscribers anyway, although they’re inevitably focussed more overseas due to licencing deals (every US studio licences to the US, but international deals are still insanely fragmented, so there’s more competition in the US).

Long term, the trend for Netflix is still good, but the first quarterly drop in the history of its streaming services made people who believe the fiction of infinite growth panic.

Anonymous Coward says:

I must continue to point out that much of the “competition” Netflix is encountering is actually splintering/fragmentation of content due to the major studios (WB, Disney, Paramount, etc) pulling content that was on Netflix and sticking it behind their own streaming service paywalls. Yes I sound like a broken record on this but it’s annoying how the term “competition” is incorrectly used in this particular context.

There’s two possible reasons I can think of that this would be happening.
1. Just because they (the major studios) can.
2. Netflix baulked at the fees it was being charged to have the content available there.

LostInLoDOS (profile) says:

Good bye content? Good bye users

I don’t know how many times I have said this anymore. Here, elsewhere, and as a share holder, to anyone in the company who will listen!

Aside from first-in-public, Netflix has survived based on a large, loyal, user base of non-mainstream film fans. People who will skip a month on DVDs and pay anyway. People who would skip a week or two on streaming but not cancel.
Slowly but measurably Netflix has eroded its independent library. In the process of becoming an independent distributor they have begun to turn their back on other Indy labels.
The exodus of these independent film fans is a major issue for Netflix, caused by Netflix
The more contracts they drop, the more users go elsewhere.

And there is the big issue for the company. Today, Netflix is in a constant raising of cost. Yet the content distribution they cut is creating their own sites. Individual or partnerships.
Where the indi scene has long known about Scream, Shout, Eros, and KOW, today arrow, pyramid, TC, Celestial, rage, brain damage, pink, district, …
Services from $9.99 down to $0.99 per month. The core, the diehard, audience has no reason to return.

Combined with the AOL syndrome, where no tracking of free trial users is done, has created the perfect storm. In the world of easy to create, disposable, free email, coupled with no-id reloadable “debit”
Cards; anyone wanting that one title can creat a free account. Watch the title, and cancel service. Multiple times.

Netflix has created two intertwined issues and needs to figure something out. Or become the next eHit; the second longest lasting tent-by-net company.

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