By Frank Pallotta, CNN Business
Netflix has had a terrible 2022. In April, it said it lost subscribers for the first time since 2011. Its shares are down more than 60% so far this year.
However, their recent struggles may not be the start of a downward spiral or the beginning of the end for the streaming giant. Rather, it is a sign that Netflix is becoming a more traditional media company.
Netflix was originally priced as a big tech company, part of the Wall Street acronym, “FAANG,” which stood for Facebook, Apple, Amazon, Netflix, and Google. Wall Street once valued the company at around $300 billion, a figure on par with many Big Tech companies that Netflix’s business model ultimately failed to meet.
“I think Netflix was grossly overvalued,” Julia Alexander, chief strategy officer at Parrot Analytics, told CNN Business. “Unlike those companies that have different tentacles, Netflix doesn’t have a lot of tentacles.”
But Netflix was never Really a technology company.
Yes, it was based on subscriber growth like many companies in the tech world, but its subscriber growth was based on having movies and TV shows that people wanted to watch and pay for. It’s more like a studio in Hollywood than a technology company in Silicon Valley.
Netflix was much more like a technology company than, say, Disney, Comcast, Paramount, or CNN’s parent company, Warner Bros. Discovery. But as those traditional media companies start to look a lot more like Netflix, Netflix, in turn, is starting to take a page out of its rivals’ playbooks: It’s going to start running ads, and it’s been rolling out a few shows over the course of years. weeks and months. instead of all at once.
Netflix has said its cheaper ad tier and crackdown on password sharing may come as early as next year. It is partnering with Microsoft for its advertising business.
“I think in many ways the moves that Netflix is making suggest a transition from a technology company to a media company,” Andrew Hare, senior vice president of research at Magid, told CNN Business. “With the introduction of ads, a crackdown on password sharing, prominent shows like ‘Stranger Things’ experimenting with a staggered launch, we see Netflix becoming more like a traditional media company every day.”
Hare added that Netflix’s previous business strategy, which was “once sacrosanct, is now being thrown out the window.”
“Netflix once forced Hollywood deep out of its comfort zone. They brought streaming into the American living room,” she said. “Now it looks like some more conventional practices might be what Netflix needs.”
At Netflix right now, “a lot of these strategic moves are being made as they mature and move into the next phase as a company,” Hare noted. That includes focusing on cash flow and revenue instead of just growth.
“In other words, old-school business,” he said.
— Moss Cohen of CNN Business contributed to this report.
The CNN Wire
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