Netflix is losing subscribers because it relies on licensed content - it’s never made a great show of its own

Towards the end of 2018, Netflix faced losing Friends. The still-popular 90s sitcom was, at the time, the third most-watched show on the platform – and alongside other series like Greys’ Anatomy and The Office, licensed content accounted for 63% of what people actually watched on Netflix. Viewership of originals was up compared to previous years, but still didn’t account for much more than a third of Netflix streaming.

So, Netflix ended up paying WarnerMedia $100 million for the streaming rights for Friends for just one more year – a huge increase on the $30 million they’d been paying up to that point. Cut to 2021, and Friends has left Netflix US for HBO Max (the streaming service owned by WarnerMedia, the company that produced Friends, rather than Peacock, the streaming service owned by NBC, the channel that originally aired Friends). It’s still available on Netflix UK, but HBO Max is planning a UK launch within the next few years – meaning the same problem is still on the horizon.

Recently, Netflix released its earnings report for the first quarter of 2022. For the first time in ten years – and, just for context, in 2012 Netflix had only recently launched in the UK and was still operating a DVD-by-mail delivery system – Netflix has lost subscribers. It’s down 200,000 subscribers so far this year, and is projected to lose a further two million over the next financial quarter. Stock valuation fell more than 25% as a result.

Hence why CEO Reed Hastings is now making noises about introducing an ad-supported cheaper tier of Netflix – something he’s otherwise long been opposed to – and has revealed plans as well to crack down on password sharing among friends and family members. And, of course, the price is going up too. The company has accrued huge amounts of debt in its relentless pursuit of expansion, and it’s now reached a precipice – that quantity-minded approach now showing concrete, long-anticipated signs that it’s not as sustainable as it needs to be.

Netflix’s problem is twofold. In their own explanation of what happened, the company pointed to the growth of other streaming services – HBO Max and Disney+ likely representing the competitors Netflix is most worried by, but also there’s Apple TV+, Peacock, and Paramount+ amongst others. These other streaming services aren’t just taking back content previously licensed to Netflix to burnish their own library – Peacock is essentially built around different ways to watch The Office – but they’re also making their own original shows too.

Part of Netflix’s problem are its own originals, especially as it’s forced to become increasingly reliant on them. There are plenty of good Netflix originals – but there are plenty of bad ones too. Looking specifically at those that are currently airing, a lot of Netflix originals are characterised by the same more-is-more maximalist approach as their spending – which leads to these sprawling, often quite poorly paced, sluggish programmes. It affects the good ones (do multiple episodes of Bridgerton need to pass the 70-minute mark?) as much as the bad ones (Inventing Anna was sunk by its lengthy, listless episode runtimes that zapped the show of all energy).

But – and this is actually the more important part, I’d suggest, because quality and popularity don’t always correlate – Netflix doesn’t actually do a very good job of supporting and building up its own shows, taking the good ones and making them into great ones. The streaming service needs its own megahits (more reliably than something like Squid Game) but rarely puts its content in a position where it can develop into that, not really giving them the space and the platform to succeed.

Part of that is because Netflix is still attached to a binge-watch model of releasing every episode at once. If you think of shows like Succession or Severance or Yellowjackets, which dominate conversation as word-of-mouth hits, a huge part of that comes from the weekly release model: they dominate conversation because they generate conversation, discussion of what’s just happened and anticipation for what might happen next, a communal experience because everyone is watching at the same pace. More people talking about a show means more people are going to want to watch it – it’s hard to achieve the same effect in that 48-hour window after a Netflix show drops and before the next one arrives.

There’s also this algorithm-driven inclination on Netflix’s part to, essentially, cancel shows often and cancel shows early – for the most part capping them at three or four seasons, often preventing them from growing creatively or commercially. (One of the behind-the-scenes conversations at Netflix I’d most like to be privy to are those that happened during that month where The Crown had its sixth series decommissioned and then recommissioned again.) Any miniseries that’s popular enough can become an ongoing drama – if Inventing Anna had taken off, maybe we’d be due an Inventing Elizabeth – but, as they try to keep cast and creator costs down, it feels like Netflix is throwing away chances to find its next Stranger Things, Orange is the New Black, House of Cards or The Crown.

So, if you’re someone who signed up to Netflix because you wanted access to that library catalogue that’s now quickly vanishing – and which you can access via other services like Disney+, or free platforms like BBC iPlayer and All4 – what incentive is there to stick with Netflix? If it’s a choice between the likes of Inventing Anna and Hard Cell on Netflix, or Pam and Tommy and The Dropout on Disney+, or Severance and Ted Lasso on Apple TV+, or Euphoria and Succession on HBO Max/NOW TV… well, they’re only going to keep losing subscribers going forward.