Analyst Insight: A No Nonsense Guide to Fixing Netflix’s Content Problem

Analyst Insight: A No Nonsense Guide to Fixing Netflix’s Content Problem

As much as it pains me to say, Netflix’s most recent quarterly report left much to be desired. Since its transition to a streaming service, subscriber growth rules the day so it makes sense the stock should dump the first time it turned negative.

There are many reasons for this, namely: inflation, market saturation, and competition.

However, the severity of the stock’s drop also triggered every Tom, Dick, and Harry to come out of the woodwork to express why they believed Netflix was on the brink of collapse. The primary culprit was one I hadn’t considered: terrible content.

This got me thinking: “is Netflix’s content getting worse?” Because if it is, that might just ruin my investment thesis which hinges upon Netflix’s first-mover advantage, high-quality original content brand, and dedication to local programming for foreign markets. To me, this makes Netflix the default streaming choice, but if their central product is not up to scratch, that could be a huge concern.

So, I took a look at Netflix’s content and plans for the future and created a guide for management to get back in customers’ good graces and bring in new subscribers. This also forms a handy check-in for investors who may be worried about Netflix’s product in these depressing times.

Some Content is Good

Firstly, comes the issue of content quality. It can be easy to allow pessimism and emotion to get the better of you, especially in the wake of a 50% drop, but I still think most Netflix Originals are worth a watch. Lord knows that some are questionable, like ‘Tall Girl’, ‘The Ridiculous 6’, ‘Girlboss’, every single episode of ‘Riverdale’, and of course, ‘Tall Girl 2’.

But, there is also really good, impactful content coming from a diverse range of creators. Think ‘Heartstopper’, ‘tick, tick...BOOM!’, ‘Feel Good’, ‘Maid’, ‘The Queen's Gambit’, ‘Squid Game’, ‘Making a Murder’, and ‘Chef’s Table’. Not to mention, all the middle-of-the-road content that seems to be the most popular of all i.e. ‘Bridgerton’, ‘The Witcher’, or ‘You’.

Remember, Netflix took home 44 Emmys in 2021— more than any other streamer. It also managed to accumulate 27 Oscar nominations across 10 projects. That’s pretty good for a company that only started making content 9 years ago.

This made me realize, the issue probably isn’t the content itself but how people find it. Maybe the good content is getting washed out by the bad or Netflix’s discovery algorithm isn’t as good as it once was. How can Netflix highlight its winners and downplay its losers? Or match people with high-quality content they might not be expecting or looking for (à la TikTok)?

This will be the key to keeping existing users engaged and satisfied while drawing in new users who are still determining if the service is worthwhile.

To this end, here are ways Netflix can improve its content experience and when/if management will be taking these steps:

There is too much original content

Netflix produced 500 original programs in 2021. That is a lot, and surely more than any one user can watch. I know they want to appeal to every taste under the sun but a bit of refinement would help the streamer focus and promote individual projects appropriately.

Bela Bajaria, the head of global TV for Netflix, has hinted that a cull is already underway. Now that Netflix is an established production house with the largest distribution network, it can spend less time and money trying to get high-quality content in the door and has the pick of the litter. According to Bajaria, this will allow Netflix to better “scrutinize” its spending and focus on high-impact productions. Moving forward, projects will be evaluated by “the ratio of a program’s viewership to its budget.” Investors seeking profitability should be relieved.

The content discovery algorithm needs to be improved

With an abundance of content on the streamer and the rather limited view provided by its apps and website, Netflix needs to find a way to make better recommendations and smooth a viewer’s transition into a new title.

On the company’s latest quarterly call, management said it would be focusing on recommendations and highlighted its new “double thumbs up” feature. Apparently, this will help “members better express what they truly love versus simply like — enabling us to continue to improve our personalized recommendations and overall experience.” Hopefully, it's more impactful than it seems. 

Allow hype to build organically

In my view, there is only so much an algorithm within the product can do. When it comes to movies and TV, word-of-mouth is just as effective, especially when you don’t have legacy IP and you’re trying to get new subscribers in the door. Just go back to Q3 2021, when Netflix added 4.4 million subscribers after the release of ‘Squid Game’.

However, more often than not, Netflix inadvertently limits organic marketing by releasing too many original projects at once, only permitting small promotional windows, and encouraging binge-watching.

Limiting original projects is already underway, but on my second point, Netflix could really use some work. According to the creators of some of Netflix’s smaller projects, the streamer only permits a one-month promotional window prior to release which is not enough time to build hype unless a big-name celebrity is involved or its known IP. Sometimes the title itself isn’t even announced before then. Netflix should be permitting small creators months of promotion even if it’s just on social media. I have yet to see management address this issue.

Finally, I know it’s Netflix’s pièce de résistance, but releasing a TV show all at once means it has a really limited half-life. With a staggered release, you create FOMO and prevent spoilers. Recently, HBO gave ‘Euphoria’ a staggered release and it prompted the show to trend internationally every week on Twitter and kept it in the cultural zeitgeist for a much longer period of time.

It is unclear if this is something Netflix would try. In April 2020 Ted Sarandos told investors: “customers have spoken loud and clear that they really like the options of the all-at-once model for us”. However, the next season of ‘Stranger Things’ will be released in two, staggered parts. Similarly, Kanye West’s ‘Jeen-Yuhs’ was released in three parts separated by a week.

Wait and See

I am cautiously optimistic to see where Netflix goes next. I love that they’re a home of original storytelling in these times of reboots and sequels but I wish they would get out of their own way. With competition fierce and more and more content looking for an audience, Netflix needs to show off what it’s got. Especially, if it’s doubling down on originals. It’s expected that 50% of its 2025 budget will be allocated to original content, up from 37% in 2020. 

If a few of these projects turn into legacy IP, Netflix can generate a whole lot more from each and find new ways to make money even after everyone’s already a subscriber.

Anne MarieAnne Marie

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