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Current Affairs

A Magazine of Politics and Culture

Is Netflix Doomed?

Streaming video on demand now offers an absurd amount of content over multiple platforms. Could the industry be headed for bust?

In 1983, something unexpected occurred: the video game industry collapsed.

Only a few years earlier, the market had been booming. In 1980, Namco’s Pac-Man was released in North America to widespread critical acclaim. The “little yellow chomper who’s as popular as Santa Claus,” as one enthusiastic newscaster described him, raked in $1 billion from arcade game sales alone. That same year, industry leader Atari developed Battlezone, the first arcade game to feature a 3D environment. Atari went on to gross $415 million that year. By the end of 1981, the arcade game industry had generated roughly $5 billion in revenue, while the home video game market was set to reach $2 billion in 1982.

But by December 1982, things had turned sour. The market was overrun with poor-quality games. Consumers regularly complained about low-budget titles with poor-quality graphics or stories that were too easy to complete. There was also an overabundance of video game consoles (the Intellivision, the ColecoVision, and so on) plus the rising threat of home computer systems such as the Apple II, which could play video games and help with homework. Atari revealed that its annual year-over-year sales increase had only been 10 percent, far less than the 50 percent it originally estimated. Wall Street investors panicked, and in 1983 Atari saw nearly half a billion dollars wiped from its value. Demand for video games plummeted. Toy manufacturer Mattel, once the third-largest video game maker, left the market entirely. Many smaller companies went bust and industry-wide losses totaled approximately $1.5 billion. The boom years of the early 1980s were officially over.

What does this retro tale of industry-wide economic bust have to do with modern-day entertainment? We can identify growing similarities with another medium which is still in its infancy: streaming video on demand (SVOD). Right now, SVOD is one of the most popular ways to fill our leisure time. According to Nielsen, the average weekly time spent streaming video content in the U.S. increased from 143 billion minutes in February 2021 to 169 billion minutes in February 2022. This means that Americans consume roughly 320,000 years’ worth of on-demand video content a week! Some 21 percent of customers spend $20-$29.99 a month on services, while 15 percent pay $50 or more for multiple subscriptions. Over half of U.S. households pay for at least three streaming platforms a month. Considering the amount of time and money we hand over to SVOD services, it’s fair to expect a reasonable amount of value in return. In 1982, working families spent wages on poor-quality games and the various consoles needed to play them, only for the industry to collapse due to mismanagement, market saturation, and competition from other forms of technology. The SVOD market has not experienced a bust yet. But as the bubble continues to expand, cracks are beginning to show.

Subscription video on demand has shot to prominence over the last decade. Market leader Netflix paved the way, successfully transitioning from a DVD rental mail-order service to a fully-fledged online streaming platform with a current net worth of $140 billion. Apple TV+ launched in 2019. Morgan Stanley analysts predicted it would become a $9 billion a year business by 2025. Today people around the world watch television across multiple streaming services, many of which are now valued in the billions of dollars. Amazon Prime alone has a global membership base of 200 million. In 2022, Prime increased its annual subscription cost from $119 to $139. And because COVID has caused many people to stay at home, streaming adoption spiked. For most of the big name platforms such as Disney+, Prime and Netflix, subscriber numbers increased and company share prices shot up throughout the 2020-2021 period. In 2022, the amount of time people spent watching streaming on demand continued to overtake traditional broadcast programming.

It’s little wonder then that commentators have heralded SVOD as the future of television. But despite this outward success, signs are appearing that all is not as well as it seems. Netflix lost subscribers last year for the first time in a decade. Investor nerves are jangling. Repercussions from Netflix’ poor performance are already being felt in the financial markets: shares in major media companies like Paramount (which owns Paramount+) and Warner Bros. Discovery (owner of HBO Max and Discovery+) have tumbled. Since the start of 2022, Netflix and Disney+ have seen $300 billion wiped from their joint market value. Meanwhile Apple TV+ and other big hitters are spending billions to create original content, but they don’t have enough subscribers to make a profit. Furthermore, there is too much video on demand content and the quality is arguably declining. Amazon is spending big in its attempts to dominate the SVOD content landscape (just last year it acquired MGM studios for $8.45 billion). Yet the market is also crowded out with smaller platforms. More than 200 streaming services are currently competing for customers worldwide, leading consumers in North America and Europe to report ‘subscription fatigue’ due to the overwhelming choice of streaming platforms.

An industry awash with poor-quality content. An overcrowded market. Consumer fatigue. Sound familiar? On top of all this, a global recession is looming. In an industry that hasn’t really been tested yet, we may be about to witness a crash on a similar scale to the video game collapse of the early ’80s. With this in mind, we need to take a closer look at what this industry is offering us now. Spending hard-earned money and precious free time on streaming video should make us more critical of the industry. We need to be more wary of an industry that turns art into content and that offers too much choice along with a financial burden for families juggling multiple subscriptions—especially if these factors are simply going to contribute to yet another major market bust that sees huge financial losses and devastating job cuts. The streaming video on demand industry can adapt before this happens. In fact it must adapt, because right now the system isn’t working for its balance sheets. More importantly, it isn’t working for its customers.

During the early ’80s, most successful titles were produced by large companies (Atari, Intellivision, Mattel) who possessed the financial resources to make fun and entertaining games. Donkey Kong appeared in 1981 to near-universal praise from gamers for its excellent graphics and challenging gameplay. But despite the arrival of innovative games from industry big hitters, a steady stream of low-quality titles simultaneously invaded store shelves. Smaller companies wanted to profit from the video game craze. Until 1979, Atari was the only company creating games for its Atari VCS console. This changed with the arrival of Activision, a company founded in 1979 by a group of embittered ex-Atari employees who wanted to focus solely on developing new games without having to build their own consoles. The outcome of a legal battle between Atari and Activision gave any independent game developer permission to create games for any console as long as they paid royalties to the console manufacturer. Between 1981 and 1982, 158 companies developed games for the Atari VCS. But many of these developers had low financial resources and struggled to attract talented programmers in a market where coders were scarce. 

The result? The market was flooded with low-quality games containing crude graphics and poor sound effects as well as boring, predictable stories. Companies such as Quaker Oats entered the market and added to the overall drop in quality by producing games that resembled thinly-disguised ads rather than pieces of entertainment. Kool-Aid Man featured the titular character running around trying to ensure a pack of “Thirsties” was captured. In some cases, developers having more freedom, combined with a lack of industry regulation, led not only to rubbish games but also downright sexist and racist material. One notorious example was Custer’s Revenge, an X-rated title by a tiny (and now defunct) company named American Multiple Industries. Custer’s Revenge drew protests upon its release. The storyline involved a pixelated General Custer overcoming various obstacles to rape a Native American woman.

Unsurprisingly, people grew tired of paying for junk products. Video games came to be seen as a passing fad, rather than a serious and permanent fixture in the entertainment landscape. Major companies like Atari arguably hastened the industry’s demise. To compete with all this new content, larger enterprises panicked and began making erratic business decisions. Instead of giving coders adequate time to develop video games, companies slashed deadlines and released games without due quality control measures. Atari’s 1982 Pac-Man for home console (since voted one of the worst games of all time) sold over 7 million copies that year but came under fire for its poor-quality visuals and grating sound effects. The final mistake in a long line of blunders was Atari’s E.T. the Extra-Terrestrial game. Atari rushed E.T. out in time for the 1982 Christmas shopping season. The result was a bizarre gameplay experience in which the protagonist spends most of his time falling into a giant cave. E.T. was so badly received that of the 5 million copies produced, stores returned roughly 3.5 million unsold cartridges to Atari.

We can find similar parallels running through the story of streaming video to date. Netflix revolutionized streaming video when it released House of Cards, its first original series, in 2013. (The company wisely started creating original content once it realized that channels like HBO were planning to create their own streaming platforms and wouldn’t allow Netflix to keep licensing their programs.) House of Cards helped the service gain a reputation for high-quality programming. The show, a political drama about a scheming couple plotting to cement their own power, earned 56 Emmy nominations and 7 wins during its six-season run. The show’s writers were given a vast amount of creative freedom compared to their colleagues in cable TV, mainly because Netflix executives didn’t have to worry about reactions to their content from worried ad sponsors. Netflix didn’t host ads, and if anyone was offended by a House of Cards episode then they could simply switch over to one of the other thousands of TV shows hosted on the platform. Netflix executives also gave their writers a two-season deal upfront: they could plot storylines and develop characters far more easily compared to network TV deals (which typically award 6 or 12 episodes). Within the industry, this was a new and innovative way of storytelling that earned the series widespread critical praise.

However, since the mid-2010s, Netflix’s content strategy has focused on quantity over quality. Time labeled 2018 as Netflix’s “Year of Too Much Content.” Critic Judy Berman described the new Netflix approach as one that prioritizes growth above all else. She argues this has turned the platform from a “prestige haven into volume business.” In other words, Netflix prefers creating quick and easy-to-make content over the kinds of cinematic, serious, and more expensive programs associated with ‘prestige’ television, such as Breaking Bad or The Sopranos.

Since 2018, Netflix and other major streaming services have only increased the amount of programming on their platforms. There are now 817,000 unique titles (and counting) available on streaming services. This content-heavy approach means that programming quality has inevitably declined. On Netflix, critically-acclaimed original hits like Orange Is the New Black now exist alongside reams of niche reality programming and game shows. How to Build a Sex Room features designer Melanie Rose advising couples on sex dungeon decor. “Don’t give it a pussy tap, give it some welly!” Melanie cheerily tells one of her clients, who is practicing spanking his wife’s hand with a riding crop. Is It Cake? is a game show in which contestants try to replicate everyday objects as cakes in an effort to trick celebrity judges. Programs such as these tend to be unscripted, making them faster and cheaper to create than a House of Cards-style prestige drama. Netflix refuses to publish detailed viewership figures, so analyzing the true popularity of these shows is tricky at best. Review sites like Rotten Tomatoes provide a barometer (Is It Cake? currently has an average audience score of around 40 percent). What we do know is that the content-heavy approach is doing nothing to stop Netflix from losing subscribers.

Netflix isn’t the only culprit, of course. Even companies who own healthy back catalogs of popular TV hits are producing an overabundance of new, mediocre programming. What’s easier and quicker than creating entirely new characters and stories? Rebooting older, failsafe franchises. Disney+ plans to release at least 20 new Marvel and Star Wars projects over the next 18 months. All of these TV programs and films are spin-offs or reboots of tired franchises. Anyone for The Guardians of the Galaxy Holiday Special? What about Spider-Man: Freshman Year? Some pop culture characters such as Marvel’s Daredevil, the crime-fighting lawyer/superhero, have received separate adaptations by multiple major streaming services within the last 10 years. SVOD platforms now resemble content mills, creating prequel after sequel after spin-off without necessarily attracting rave reviews from viewers. Legacy characters from previous projects are brought in for nostalgia purposes to satisfy existing fan bases (e.g., Bruce Banner’s appearance in the new She-Hulk: Attorney at Law series). Franchises like Marvel tease the next film they’re making with much-hyped end credit scenes. But after a while, such devices can leave viewers feeling as though they’re simply watching another piece of content within a wider universe of content that is constantly producing new programming. As critic A.A. Dowd puts it: “What hope do these movies have to feel fresh or exciting when they’re arriving at a pace to rival the clockwork release of their comic-book source material?”

For viewers, the impact of too much mediocre content is clear. First, we simply don’t have enough time to watch all of these shows. According to one report, it would take the average U.K. citizen roughly 86 years to watch all of the video content currently on offer across the 9 major British and U.S. streaming services. And that’s only if each person devoted at least 3 hours a day solely to watching video streaming on demand. Second, it’s starting to look as though we’re no longer willing to keep paying for a content-heavy approach. So-called content fatigue has already been widely reported on by TV critics and marketing executives alike. It’s happening in the U.K., where Netflix is losing thousands of subscribers amid a cost of living crisis combined with Europe’s energy crisis. According to Kantar Worldpanel research, the number of U.K. households with at least one streaming subscription fell by 937,000 between January and September of 2022. Program quality becomes an important factor when people need to sit down and justify the direct debits leaving their bank accounts.

Indeed, ‘churning’ has become an important indicator that customers are trying to find ways around balancing multiple subscriptions. Churning occurs when users either cancel or cancel then re-add a particular SVOD service. Overall, the churn rate in the U.S. is around 37 percent across all streaming services. And rising numbers of consumers, particularly Gen Zers and millennials, are churning. In a desperate bid to counteract this phenomenon, platforms like Netflix and Amazon Prime have been engaged in an unprofitable content war. Amazon’s Lord of the Rings: The Rings of Power is now the most expensive TV program ever made, costing over $1 billion. Disney+ reportedly spent $33 billion on content in 2022 alone. Admittedly, Netflix Originals Stranger Things (season four) and the first season of Squid Game generated billions of viewing hours, garnered widespread critical acclaim, and were rare examples of SVOD programs creating a cultural buzz akin to TV hits such as Breaking Bad and Game of Thrones. But their popularity did nothing to increase year-on-year Netflix subscriber growth. Squid Game (a South Korean series) helped attract 1 million new customers in the Asia region, but the platform leaked subscriptions everywhere else, including 600,000 cancellations in the U.S. and Canada. In fact, in North America the main SVOD services are still experiencing stagnant subscriber growth, despite investing millions of dollars in original programming like Stranger Things. Ironically, in order to keep their balance sheets looking healthy and fund this content creation, services such as Amazon Prime have increased their subscription costs. This will likely force low-income customers to churn even more in future. (Amazon Prime memberships may have already reached a saturation point in the U.S., anyway.)

The content-churn cycle must surely reach a critical point. Just as Atari panicked at market competition and began rushing out games before the bust hit the video game industry, SVOD services are trying to drown out their competitors by plowing money into programming despite struggling to make a profit. Interestingly, Netflix has just begun implementing a new strategy which may provide an antidote to this situation. The platform is staggering the release of its biggest hits, such as Ozark and Stranger Things, by dropping episodes every week (rather than all at once) or releasing seasons in two distinct halves, with a gap of several months between each half. This gives people more time to watch a series and builds anticipation for new episodes. The platform will also be reducing its enormous content budget, which reached $13.6 billion in 2021.  Is this a sign that industry executives are starting to realize that ‘more content quicker’ is wearing out customers? Let’s hope so.

The market is also saturated by the sheer number of SVOD platforms available. Back in the early 1980s, gamers faced a similar situation. Along with poor-quality games, they had a dizzying array of competing consoles to choose from: the Atari VCS, the ColecoVision, the Intellivision, and the SEGA SG-1000. In 1982, at least seven major consoles entered the market. Only six months before the crash, a May 1982 Business Week article predicted that by 1985 “nearly half of all U.S. homes with television sets will own a video game machine.” But the sheer amount of consoles available created fierce competition. Video games appeared to be thriving, but an overabundance of choice destabilized the industry. People were unwilling to spend money on new video games and new consoles. By 1984, the industry had crashed so severely that only one new system—Rick Dyer’s Halcyon model—appeared on the market. It was a financial failure.

At the same time, the ’80s marked the rise of home computers. Steve Wozniak and Steve Jobs released the Apple II: “The home computer that’s ready to work, play and grow with you!” In the U.K., Sinclair Research developed the highly popular ZX Spectrum. Entertainment mediums are always competing for our spare time. The marketing departments of home computer companies knew this and had the perfect angle to play on. As one ad for the Commodore 64 computer helpfully reminded parents: “Kids can do more with a Commodore 64”. Rather than investing in multiple video game consoles, why not buy a single machine that can do everything: spreadsheets, word processing and video games, too? The message worked. In 1982, approximately 1.4 million personal computers shipped around the world. Their sales continued to grow through the mid-’80s as consumers ceased to buy video game consoles.

Since Netflix first shot to fame, it has been hard to ignore the increasing number of SVOD platforms on the market. Disney+, Apple TV+, Amazon Prime Video and Paramount+ are just a few examples of the industry’s major players. In general there is very little difference between how these services operate and what their interface looks like. People sign up to a subscription plan, scroll through the platform’s available content, and binge-watch whatever they choose. What really sets each platform apart is the programming it offers. Some platforms have successfully marketed themselves as leaders in particular TV genres. Disney+ is arguably the biggest ‘family oriented’ platform and features a huge array of kids programming. Sports subscriptions such as ESPN+ and DAZN are another popular niche streaming genre. This can help streaming platforms to set themselves apart in a crowded marketplace. Yet most SVOD services will still offer a range of genres, even if they happen to specialize in a particular form of entertainment. And with all these available platforms comes a great deal of consumer frustration.

Licensing poses one of the most annoying issues. When a new platform appears, it removes all of its licensed content from existing platforms then adds that content to its own new service. This means that you’ll need to take out a new subscription if you want to keep watching said content. For example, if you were recently binge-watching Parks and Recreation or 30 Rock on Netflix U.K., you might have noticed that both programs suddenly disappeared in August last year. No matter. NBC has now uploaded them to its Peacock streaming service. You’ll just need to take out a subscription to finish watching them.

According to a Deloitte survey, around half of U.S. consumers say they’re frustrated by the growing number of subscriptions and services required to watch what they want. Yet more and more SVOD platforms keep appearing and the licensing cycle continues. Keeping track of the sheer number of platforms is impossible. Content from many smaller free or ad-supported services tends to also appear on the larger SVOD services: a typical example is CuriosityStream, which has its own website but also appears as a channel on Amazon Prime. Platforms regularly merge with one another, too: in 2021, NBC Universal merged its WWE Network with Peacock, while Disney is set to buy out Hulu.

This overabundance is leading to so-called ‘subscription fatigue,’ a phenomenon noted in 2019, when Variety reported that consumers were becoming irritated when content suddenly vanished from their existing streaming subscriptions. Nielsen has also reported that in 2022, nearly half of viewers are finding it hard to access the content they want to watch due to the volume of SVOD services. These frustrations have only continued to grow as the number of streaming platforms on the market keeps increasing. During COVID lockdowns, when many people (essential workers not included, of course) stayed at home in front of screens all day, the threat of consumer fatigue was delayed and major SVOD services saw healthy increases in their subscription numbers. Now Forbes, The Guardian and other major outlets are once again reporting on subscription fatigue, which is leading to more cancellations and those aforementioned churn rates.

One could argue that many people are still willing to pay for SVOD subscriptions. Indeed, market data from earlier this year shows that many families were happy to retain their subscriptions, with some even thinking about buying more. But the last several months have put a sudden and dramatic strain on personal finances. The global economy is wrestling with the effects of the war in Ukraine and a looming recession. Netflix is already shedding subscribers in countries like the U.K., where inflation and rising energy prices are major issues. If poorer families are forced to adjust their household budgets to balance paying for rent, food, and other essentials, multiple streaming service subscriptions quickly become surplus to requirement. Platforms must respond to growing demands for more flexibility so that customers feel less overwhelmed and more in control of their monthly subscription costs.

‘Bundling’ is the most obvious solution. A bundled video streaming service would allow consumers to pick and choose the services they want (e.g., ESPN+, Paramount+, HBO Max) at a less expensive rate rather than paying for all of these services separately. Some bundles are already starting to appear, with options generally offered by companies putting together the various platforms they already own (e.g., Disney has a Hulu/ESPN+/Disney+ bundle). But collaborations between the major streaming services, such as a hypothetical Netflix/Paramount bundle, for example, are unlikely to appear any time soon.

Flexible solutions such as bundling will have to become options eventually if platforms want to retain users who are more aware than ever of multiple subscription costs and the frustrations that come with too many platforms. After all, streaming video on demand isn’t the only entertainment medium vying for people’s time. Video games are emerging as a growing threat to streaming platforms. Data from market analysts shows that younger generations are as happy playing video games as they are watching TV on demand. One Deloitte survey found that Gen Z respondents from the U.S., U.K., Germany, Brazil, and Japan all cited gaming as their favorite medium of entertainment. Streaming subscription churn rates already tend to be higher among millennials and Gen Z consumers. If younger generations aren’t as loyal to their streaming services, and many seem to prefer playing video games anyway, there’s a chance that gaming could overtake SVOD to become the main hobby among adults in the next decade or so. After all, it’s not just young people who are embracing gaming: boomers and Gen X respondents in Deloitte’s survey reported spending an average of 6-10 hours per week playing games. Gone is the gaming stereotype of the teenager playing for hours on a console in their parents’ basement. Video games now incorporate everything from Animal Crossing-style mobile phone time fillers to online Esports tournaments. And these options are attracting a more diverse audience in the process.

Furthermore, unlike streaming on demand, gaming offers a wide variety of flexible purchasing options, depending on how you choose to play. Alongside purchasing a physical copy of a game, you can buy games from a digital distributor like Steam, download games for free then buy in-app purchases, or use a subscription cloud service like Xbox Game Pass, which offers gamers a rotating catalog of games each month. These flexible options may well come in handy during a cost of living crisis. A recent Toluna report shows that gamers in the U.S. and U.K. are already planning to cut spending on entertainment streaming services (games, video, and music), with U.S. Game Pass subscribers more likely to get rid of SVOD services than cut back on gaming costs.

Admittedly, the rising popularity of gaming is less worrying for companies that don’t depend solely on streaming subscriptions for profit. Amazon won’t burn its fingers too much if streaming levels fall: it already sells video games and consoles and doesn’t rely on SVOD to maintain profits. In fact, it could well choose to invest in its own video game division in future. But for streaming-only services like Netflix, particularly those without a marketable ‘niche’ genre, the growing preference for video games among younger generations presents another danger to subscriber growth. Last fall, Netflix announced the launching a new gaming studio, with the company also exploring the creation of its own cloud gaming service. Perhaps Netflix has one eye on the future after all, particularly as 63 percent of U.S. gamers believe such services are the ‘future of video gaming.’

By the time E.T. arrived in December 1982, the video game bubble was already bursting. For a few short years, the ‘Golden Age of Video Games’ was a time of great excitement. But gamers rode a rollercoaster of instability, poor business decisions, and rubbish games. By 1983, most gamers were tired of investing resources in an erratic entertainment industry. One E.T. reviewer from April 1983 captures this frustration with stark advice to gamers: “Save your time and money.” Some observers suggested that video game technology had reached its full potential with classics such as Defender and Tempest, and that young people would soon move on to the next big thing.

With hindsight, we can observe that the industry’s bust benefited consumers in the long term. The video game industry clearly recovered from the dramatic financial losses of 1983 to 1985. When Japanese conglomerate Nintendo ‘rescued’ the North American market in the mid-’80s, it introduced some much-needed regulation into the industry. For example, Nintendo subjected all games by third-party developers for its Nintendo Entertainment Console to a rigorous quality control process. Games which passed this process then received an “Official Nintendo” seal on their packaging to help boost consumer confidence in the product. A Washington Post article from 1987 described Nintendo as “single-handedly reviving the industry” with such measures. (The industry is far from perfect, of course. Video games have a long history of self-regulation away from government interference. But addictive video games, sneaky monetization practices, and mandatory employee overtime are all problems that gaming companies need to address.) The company-led regulations led by the likes of Nintendo were game changers and continue to influence industry practice today, at least when it comes to the amount of games released and their overall quality.

Booms and busts are a common feature of capitalist economies. But when a sector crashes, businesses go under and working people lose their jobs. Plus the money that the average person has invested in a streaming service leaves them with nothing to show for their monthly payments in the event of an industry crash. Similar to how software licensing works, we don’t own any of the programs we watch online; we’re paying repeatedly to license them for our own personal use. If a streaming service goes bust, all we’ll have left to comfort us are distant memories of tuning in to watch the latest Netflix original or HBO prestige drama. So what is it all for? Millions of people are currently putting time and money into a sector that is producing an overabundance of content, much of it average to low-quality, across more platforms than anyone can possibly subscribe to. If 2018 was the Year of Too Much Content, 2023 might become the Year of OK, We Need To Rethink This Business Model. Given the vast array of content currently available, we deserve to see more thoughtful and original programming in the future, even if there is less of it being produced. Money-saving solutions such as subscription ‘bundling’ packages should become an option as soon as possible. Whatever form these innovations take, nobody wants to witness another E.T. saga. Or a Custer’s Revenge, for that matter. After all, we’re already bracing ourselves for Disney’s 10,0000,000th Star Wars spin-off. Enough is enough.

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