Netflix lost subscribers, and Disney become the market leader in the streaming business. In the first six months of 2022, the company created in 1997 as an online DVD store, which dominated the streaming market for 15 years, and was the main responsible for the emergence of this market, was surpassed in number of subscribers by Disney, which had really stepped into this market, with its Disney Plus, only in 2019.
Impressive? Undoubtedly! But not a surprise. And we will explain why:
Netflix lost subscribers for the first time in 15 years, and this came in a post-pandemic situation, in which consumer behavior changed, with people staying at home longer, including working from there, what would indicate that the platform should, at least, keep the subscribers it already had.
What happened is that the Netflix business model, so innovative and disruptive that caused the end of video rental stores, like Blockbuster, jeopardized the television business, as we know it, and is also causing major changes in the movie theater business, brought, along with its strengths, a weakness, which made Netflix vulnerable, and allowed Disney’s rapid growth
To be technically accurate, Netflix is the streaming brand with the largest number of subscribers in the world, 220.67 million. To reach the 221 million subscribers that surpassed it, Disney counted its 3 brands, Disney Plus, Hulu and ESPN Plus. But what really matters is the trend that these numbers present, and the new scenario of the streaming market, in which the price of a Netflix subscription, more expensive than its competitors, is just a small detail.
What really matters is the content the consumers wants to watch, and the brands they love.
The subject of this article is precisely to explain how, and why the streaming business changed, and how Netflix is changing its strategy to deal with this new scenario, and in the very long term, guarantee its survival as a major player in the entertainment business.
The costumers love the content, not the streaming platforms
Content is King is the title of an article wrote in 1996 by Bill Bates, founder of Microsoft, in wich he stated that content was what would really drive money on the Internet.
And Bill Gates was right! He realized that those who made the most money from television were not those who manufactured and sold TV sets, but those who produced and broadcasted the content that was watched on them. And the founder of Microsoft predicted that the same would happen on internet, because he understands the value of content.
What the costumers want, and are willing to pay for, is the content. featuring the characters that they love, that, from the entertainment industry point of view, are the most loved brands.
Does Netflix have quantity while Disney has quality? We disagree
When we talk about content, great experts on the subject consider that Netflix have bet on quantity, not quality, like Disney. It’s an opinion from professionals who know their job. And maybe it explains part of the problem of Netflix’s loss of subscribers, and market leadership. But that doens´t tell the whole story.
In our opinion, the issue is that Netflix had a growth strategy, that worked until recently. But this strategy had a weakness, that its competitors, especially Disney, are exploiting. And it is forcing the pioneer of the streaming industry to reinvent itself.
Most of Netflix’s content is owned by other companies
Netflix has many films and series in its catalog. In it´s inventory, the largest of all the streaming services, you can find movies such as Top Gun, Jaws, Taxi Driver and Saving Private Ryan, featuring actors and directors such as Tom Cruise, Steven Spielberg, Robert De Niro and Tom Hanks, in addition to series as Breaking Bad. A content that can attract the public’s attention, even though many of these productions were released decades ago.
The popularity of these artists, and classic films, is indisputable. But Netflix’s vulnerability is that it doesn’t own the copyrights of these movies, or the trademarks related to them. Renewing licenses for these films will always require Netflix to make an investment, which leaves the company it in the hands of a supplier partner, which under some circumstances, can become a competitor, like happened with Disney.
That´s the reason why we will probably never see again content from major pop culture brands such as Pixar, Marvel, and Star Wars, that are owned or purchased by Disney, a major brand itself , on Netflix.
Before Netflix, no one believed in streaming
When Netflix set out to stream movies online, first to the cell phones, and then consumer´s TVs, movie studios didn’t have much to lose by licensing movies to the platform. Selling films online had been a theorized since the internet became popular, but no one had managed to make it come true, due to technological limitations and, mainly, building a business model that could be profitable. For the studios, it was a matter of wait and see.
Today, it is no exaggeration to state that streaming is the most important business of all audiovisual-based entertainment. Disney created Disney Plus because it understood that through streaming it can reach the consumer without depending on intermediaries, such as cable TV channel operators or distributors, that control movie theaters. So, it would make no sense to depend on Netflix to do it.
The big risk for Netflix is if other studios, which own the rights to movies that attract and keep subscribers, decide to do the same.
Does Disney offer better quality movies than Netflix?
This is another statement that we respectfully disagree with. In the same way as Netflix, Disney Plus has, alongside the great successes, several low-budget films and animations, with unknown actors and directors, or down in their careers, just to make up the stock. No one would subscribe to a streaming service to see this content, but it´s necessary to have something to offer to the customers when they’ve watched all the important releases.
What Disney, a company founded in October 1923 and on the cusp of 100 years in the business of producing animations and movies, and making a lot of money from them, has that Netflix doesn’t, is the most powerful brands of pop culture.
Disney created many classics, such as Mickey Mouse, Snow White, Cinderella, The Lion King, and many others. And owns the copyrights and commercial rights of all of them, in addition to the productions from other studios and companies that it controls, such as Marvel, Pixar and Star Wars. which also have well-known characters and are powerful brands of pop culture.
Even the low-budget content that Disney plus offers, often consists of sequels and spin-offs of these blockbusters, produced years ago for the cable TV channel Disney channel. But because it carries powerful brands, this low-budget content has a much higher value. So, we are talking about powerful brands, much more than the quality of movies and series.
To overcome its weaknesses, Netflix will become a traditional media Company
It would be unfair to accuse Netflix of some kind of marketing myopia, of standing by and watch the competition moves. For some years now, the company directed by Ted Sarandos has moved in the opposite direction to Disney, but with the same objective of integrating operations, to do not to depend solely on the content of companies that may become its competitors, and invests in the production of its own movies and series.
But, seeing that it was losing subscribers, and revenue, in order to gain financial strength and, above all, to reorganize its strategy, including reorganizing the content area, which defines the series and films that will be produced, Netflix took the controversial decision of creating a subscription plan with more competitive prices, but that will bring paid advertising.
Many costumers are complaining, and they may be right, since one of the main benefits they associate with the concept of streaming, which Netflix itself helped to put in the consumers mind, is being able to watch what they want, when they want, without being interrupted at their leisure to watch ads.
Regardless of how consumers will react when the new package is available, it is interesting to analyze that Netflix, which until today has been a disruptive company, adopts a very conservative strategy, becoming a traditional media company, which produces and broadcasts content and sells advertising.
The future of Netflix
It would be easy to criticize Netflix for changing a concept itself created, frustrating some consumers, saying it is “doing it all wrong”. But the company might not have alternatives, since to compete with Disney’s content, it is not enough to produce content. It is necessary to have strong brands, which are not built overnight.
And, as we’ve already stated, Disney has some of the most powerful brands in the entertainment industry. Some of them, like Star Wars, are the object of a true cult by many fans, which also happened with Marvel, which, with the MCU, managed to release 20 films in 10 years, achieving a great box office in all of them.
Luke Skywalker, Darth Vader and all the mythology created by George Lucas debuted on screens in 1977, and have been part of the imagination of a good part of the population of Planet Earth for 45 years. The Avengers have been published in comics since 1965. Mickey Mouse itself was created in 1928.
The only characters and brands able to compete with these, such as Superman, Batman and Wonder Woman, all DC Comics characters, and Harry Potter, which has eight films and a few spin offs, also don’t belong to Netflix.
Did Netflix get it wrong?
The answer is no, Netflix didn’t commited a mistake. Or did not understand the market in which it operated. In addition to some films that caught the public’s attention, such as Don’t Look Up, The Irishman, Two Popes and Portraits of the World, with actors and directors such as Leonardo DiCaprio, Tom Hanks and Martin Scorcese, she went after the brands that were available, and that already had their fan base.
This explains the investment in series like The Witcher, success in role-playing games and books, Masters of the Universe, animation that brings back the character He Man, and Cobra Kai, which shows the characters of Karate Kid thirty years after the originals films, played by the same actors.
These were successful moves, and it was reflected in the geek market, with some fans wearing Cobra Kai t-shirts. But Netflix’s smash hit, candidate to become a pop culture phenomenon, that continues beyond its runtime is not a retelling, but a homage to the eighties: Stranger Things.
A Netflix Original Content, Stranger Things, created by the Duffer Brothers, is full of cultural the Eighties references, from Steven Spielberg’s ET (1982) to Arnold Schwarzenegger’s Terminator. The band Metallica itself, which has an audience that accompanies it, and sells out its shows since the eighties, was introduced to a new generation of fans by being part of the soundtrack of the fourth season.
The problem is that Star Wars, Marvel and Disney itself are unique brands in the entertainment industry. Comparing anyone else with them is very risky. But, based on a comparison made between the search trends of three Netflix brands, The Witcher, Cobra Kai and Stranger Things, and the two of Disney, Stranger Things has the potential to become a very durable, and profitable cultural product.
So, the easy answer to Netflix’s dilemma, then, would be that it just needs more brands as relevant as Stranger Things. The difficult thing, however, is to create one