from the live-long-enough-to-become-the-villain dept
Maybe it’s a weird personal flaw or something, but one of the most fascinating things in business to me is watching one-time pesky disruptors inevitably pivot into powerful turf protectors. As well as all the executive finger-pointing, shenanigans, and denialism that process usually entails.
Take, for example, Netflix. After being disruptive and shaking up streaming for years, the company has been losing subscribers as it faces greater competition from the likes of Amazon, HBO, Hulu, Disney, and dozens of other newer streaming ventures. Its recent earnings report indicate Netflix lost 200,000 subscribers last quarter, its first subscriber loss in a decade.
There’s many reasons for this, including competition, a hugely unpopular price hike, and a Netflix catalog that increasingly includes some fairly banal reality TV shlock that’s cheaper to produce. But in a letter to shareholders, Netflix executives also continue to blame a bogeyman they’ve been increasingly complaining about over the last year: the dire menace that is password sharing.
Initially, Netflix executives loved password sharing because they (correctly) saw it as advertising for its services. Now that it’s harder to reach quarter over quarter growth, Netflix feels the need to weirdly blame it for its problems as they look to boost subscriber tallies by any means necessary to please Wall Street.
But Netflix executives blame it in a way that’s kind of weird and disingenuous; namely by pretending the problem with the way they’re doing things now (the popular way) is that it creates “consumer confusion”:
sharing likely helped fuel our growth by getting more people using and enjoying Netflix. And we’ve always tried to make sharing within a member’s household easy, with features like profiles and multiple streams. While these have been very popular, they’ve created confusion about when and how Netflix can be shared with other households
There’s nothing actually confusing about any of this. This is just flimsy logic to justify making the consumer experience worse, to feed the insatiable investor desire for improved quarterly returns.
This is what’s entertaining to me about this point in a company like Netflix’s life cycle. Public companies can’t just consistently deliver a quality, well-loved product. They’re obligated to shareholders to boost quarterly returns at any cost. That creates a dynamic where a popular company will often effectively resort to self-cannibalizing–or make its product shitter–in order to “succeed.”
It’s a growth for growth’s sake mindset that often functions in stiff opposition to the principles adopted when a company was sleeker and more innovative. One of the first casualties of this kind of mindset is both consumer-facing prices, and “peripheral” stuff like customer support (see: telecom). In Netflix’s case, it also looks like it’s going to include adding some advertising.
There have been other examples of Netflix shifting from innovator to turf protector; such as when the company effectively stopped caring about net neutrality once it was large enough to pay off any large telecom players like Comcast or AT&T that might be bullying it financially.
Previously, streaming executives were quick to point out that password sharing had no material impact on revenues. In part because there’s no guarantee those users will pay for an account once they can no longer share their friends’ or parents’ account. Also because most streaming services already limit the number of simultaneously streams per account.
But then cable companies like Charter Communications began crying that password sharing was a form of piracy (it’s not). As Netflix grew, its executives began to adopt this adversarial mindset as well. Now, the company is experimenting not with innovative new ideas to provide more value to customers, but with technologies that determine whose sharing outside of their own home, allowing Netflix to nag and raise the prices on those subscribers.
Netflix has launched these new nagging price hikes in Chile, Costa Rica, and Peru, and it won’t be long before they come to the rest of its territories. Right on the back of a significant price hike last year that had already annoyed customers and was the likely culprit of a sizeable chunk of the company’s lost growth.
Once a company executive enters this cycle (again, see telecom and cable) you’ll routinely start distorting logic to justify any decision that erodes the quality your product was once known for. That opens the door for disruptive competitors who do still want to compete on quality to erode your subscriber base further, and the big dumb loop just accelerates.
Filed Under: advertising, cable tv, competition, net neutrality, netflix, password sharing, price hikes, streaming, television, turf protection