Streaming is Becoming Cable – the Death of the Netflix Streaming Model
The streaming wars have turned streaming back into cable. Have you noticed that streaming is starting to feel awfully similar to cable? Well you’re not the only one. The traditional streaming business model that Netflix pioneered is dying and the media industry has been taking notice. If you’ve been paying attention, you know that the past few years have been a rough time for Netflix as the company has been starting to flatline in terms of their subscriber growth. They’ve also been facing growing costs and increasing competition from other players in the streaming space. In response, the company’s stock had one of its worst years in recent memory in 2022 with Netflix crashing over 45% during the course of the year as the company had a quarterly loss in subscribers for the first time in over a decade which shocked investors and led the stock to crumble. The company has been scrambling to restore investor confidence with new initiatives like ad supported streaming plans and cracking down on customers sharing their accounts, despite the fact that historically Netflix had said it would never offer ad supported streaming plans.
So why is Netflix all of the sudden pulling a 180 and completely changing the streaming business model that it pioneered? The simple answer is that the traditional streaming business model just isn’t that good at making money and this has become increasingly clear with the growing competition in the space.
But here’s the problem – that’s a fine business model when you’re the only competition in town, but nowadays there are tons of streaming services that are all competing for the same subscribers. This means that media producers are now saving their intellectual property for their own streaming services which has significantly driven up the price of securing licensing rights to offer content on streaming platforms. This is why Netflix has spent so much money in recent years on producing Netflix original series in order to have content for the service, but creating original content for streaming comes at a very hefty price and this has contributed enormously to Netflix’s business expenses. Other streaming services like Disney+ that have also focused heavily on creating original content are also scaling back on their content production in order to cut costs and attempt to reach profitability.
Another reality these companies are facing is that most people are not going to subscribe to all of the streaming platforms out there. Most people are only going to subscribe to one or two of these platforms at a time and they might not even keep their subscription for very long. Back in the day when Netflix was the only really big streaming service out there, most people would keep their monthly subscription almost indefinitely. But the current reality is that many streaming customers nowadays are more than happy to save some money and cancel a subscription after they’ve watched the movies and shows that they want.
All of these issues are putting heavy pressure on Netflix and other streaming companies profitability which is why you are starting to see these companies scramble to make their streaming services more profitable. After all, footing the bill for billions of dollars in losses a year like Disney+ is doing right now is just not a sustainable business model. And this is why there’s been such a rise in advertising supported streaming plans to the point where even Netflix completely backtracked on its historical position on not offering ads. Because the reality is that advertising has been the financial backbone behind TV and media for ages. Advertising is the reason why cable actually made media companies lots of money. You might be seeing where I’m going with this, but if you’ve been starting to feel like streaming is beginning to look a lot more like cable, there’s a reason for that. Media companies are moving away from Netflix’s traditional streaming business model into one that looks a lot more like a hybrid between streaming and cable because the economics just work better.
Unfortunately the golden days of streaming are pretty much behind us at this point. Streaming has become too saturated and fragmented by competition which has made the legacy streaming business model even more uneconomical. With companies facing growing pressure from investors to renew their focus on profitability and stop taking heavy losses, it seems likely that streaming platforms will venture even further towards advertising and higher plan pricing. In other words, the old days of the traditional Netflix streaming model are dead.
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