Breaking The Commandments At Netflix; What Will It Look Like After?

In the scant few weeks since Netflix announced a seemingly tiny decline in its subscriber rolls, the first such drop in a decade, the company has been breaking seemingly every one of the “commandments” handed down by founder/Co-CEO Reed Hastings during the company’s massively successful run at the top of streaming video.

Change is arriving everywhere in the company, including with things that its executives had long said were bad ideas. What will Netflix look like a couple of years from now? Perhaps even more importantly, what will the changes mean for its customers and content partners? What happens when Netflix looks and acts more like everyone else?

The “commandments” are just long-standing company approaches to its operations, often directly contradicting long-standing Hollywood practice. But here’s a short list of what’s changed or will be changing in the near future:

  • Adding Ads. Probably the biggest broken commandment of all, offering an ad-subsidized tier, which the company says it will roll out by year’s end. The company can tap oceans of viewer data to better target ads, but will be wrapping those ads around a vast library of shows designed to play without ads. A cheaper tier will expand Netflix’s total addressable market, but as Hastings long said, it also provides a poorer viewing experience. Mid-roll ads also change how scripts are constructed, to include mini-cliffhangers that keep fans coming back after the commercial break. Also, will the notoriously secretive Netflix have to disclose far more viewing data than it ever has, to accommodate advertiser expectations?

  • Ending password sharing. After years of minimizing the impact of password sharing, the company finally acknowledged it had 100 million password freeloaders, nearly half its entire base (that tardy admission drew a shareholder lawsuit). A crackdown is coming, executives say, but can it extract more revenue without enraging subscribers unhappy that Grandma or their former roommate now has to pay to play?

  • Ending the Binge. Binge watching has been a crucial social component of ad-free Netflix. It also reshapes the production pipeline, because Netflix can’t release a show until all episodes are produced, subtitled and dubbed in multiple languages for its global audiences. Now, Netflix is drip-feeding some shows to fans, one episode a week like most its competitors.. Will that tactic keep fans coming back, or just annoy them when they lose track of a show amid everything else out there?

  • Layoffs. Getting shown the door at Netflix is practically a rite of passage in the entertainment industry, almost a badge of honor in the company’s Darwinian HR process of constant personnel evaluation. But a round of 25 layoffs of writers/marketing personnel around the Q1 earnings call has been followed by a second round of 150 more cuts is changing the calculus. The company’s own statement said the people mostly were being fired despite their abilities and contributions. If job insecurity further ramps up, does Netflix risk a brain drain?

  • Cutting spending. Netflix’s long-touted flywheel of success – spend on programming/attract more subscribers/spend the additional money on more programming – is broken. The company is cancelling projects and programs, and clamping down on green lights, spending, and hiring. Will tighter budgets cost it high-profile projects or top talent now that it can’t offer quite as much? Will it be perceived as both less cool and less stable?

  • Changing Culture. The company’s uniquely well documented corporate culture got an update, warning employees that they may have to work on projects they don’t agree with. If employees don’t want to do that, well, Netflix might not be a good place for them. The new corporate language is likely a response to last year’s staff rebellion over anti-trans comments in a Dave Chappelle comedy special. But the “deal-with-it” message may further affect talent attraction and retention.

  • Longer and more theater runs. Once reserved for a handful of awards contenders (eventual Oscar winners Roma, Power of the Dog) and potential mega-franchises (horror/action hits Bird Box, Army of the Dead), theatrical releases have been mostly one to three weeks before hitting the small screen. The theater-only releases also have been limited to a couple of hundred arthouse and independent theaters, because of opposition by the big chains. Netflix’s company line was always that they wanted to get top-tier programming to paying subscribers as soon as possible. That could be changing. Bloomberg reported that Netflix is considering a 45-day exclusive theatrical release for Oscar winner Alejandro Gonzalez Inarritu’s Bardo, and the sequel to Knives Out. Netflix spent $500 million for two Knives Out sequels, so it needs to maximize its return. The Motion Picture Academy just issued new rules this week requiring an initial in-theater release for all contending features. But to get into the big chains, according trade group leader John Fithian, Netflix will need to agree to something like an industry-standard 45-day exclusive window, plus a significant marketing campaign. Is Netflix ready to spend that kind of money, while telling subscribers they have to wait a month and a half for the best movies? Will Netflix need to do more than a handful of such theatrical releases to drive awareness of its best projects?

  • Growing churn, and with absolutely the wrong group. Research firm Antenna reported that Netflix is seeing substantially higher churn among previously loyal subscribers. Among those who’d subscribed for at least three years, cancellations jumped from 5% to 13% in the first quarter of 2022. High churn has been the bane of Netflix’s many competitors, but has traditionally been far lower for Big Red. Will even long-time fans now lump a transformed Netflix in with the competition?

Put all these together, and it’s a breathtaking shift in operations on so many levels for what has been the streaming industry’s most successful and innovative company. Hastings and his crew had good reasons for all their commandments for years. Their success repeatedly suggested the Netflix Way was the right one, industry practices be damned.

As it now busts so many of its own commandments, is Netflix in danger of losing its unique position? Will it be seen as just another streaming company, one easily churned in and out of, depending on the latest hot show? Can it still be what Netflix has been for so long?

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