According to the Wall Street Journal (WSJ), Netflix stock dropped a whopping 35% on April 20, declining its market value by $54 billion. This steep plummet could mean the end of the FAANG (Facebook, Amazon, Apple, Netflix, and Google) era.
Senior Netflix executives say that this trend will not continue as they impose more financial discipline. Over the years, the entertainment provider has ceaselessly produced new content and programs. While that spending did result in growth, the company now faces the consequences of some wasteful expenditures.
According to ZeroHedge, Netflix subscriptions were expected to rise by two million but instead plummeted by 200,000. The company says things will get worse before they get better. It expects to lose more subscribers as consumers are financially burdened by inflation, recession, and subscriptions to numerous other streaming services.
WSJ explains that while Netflix created over five hundred original titles last year, the streaming service is looking to emphasize quality rather than quantity. Netflix is currently attempting to minimize risk and focusing on programs with the most significant return based on the viewership-to-budget ratio. The company is transitioning to operate under a new model and will institute higher subscriber rates and cut out shared subscriptions.
In an interview, the head of global TV for Netflix, Bela Bajaria, said, “We should right-size budgets depending on what the creative dictates, and what the size of the audience is.”
Bajaria stated that when Netflix first began to make original content, it did not yet have a track record of creating content and had to make outsize bids to helm high-profile shows like “House of Cards.” According to Bajaria, “That was the cost of entry, the cost of doing business.”
The company intends to be more frugal, but executives like Bajaria stated that Netflix will not cheap out on production and continue producing quality programs. Bajaria said, “We’re always going to make great shows and have the amount of money needed for the creator’s vision.” Netflix said it expects to spend $20 billion on producing content this year. However, executives will closely monitor the funds.
Even with Netflix’s plunge this week, it still leads streaming services with 220 million subscribers. According to WSJ, with Netflix plummeting, investors wonder if every streaming service could get a piece of the proverbial pie or if everyone would end up hungry. Paramount+ (-7%), Disney+ (-5%), and HBO Max (-5%) all experienced falls in stock this week.
Pressures are high for all streaming services as the market becomes more saturated. Both Netflix and its biggest competitor, Disney+, are considering offering a lower subscription rate with advertisements to gain more subscribers. Streaming services also feel the pressure of creating hit shows to attract new subscribers without abandoning their current ones.
According to veteran media analyst Michael Nathanson, consolidation to reduce the number of streaming competitors might relieve some of the current pressures, but the industry remains a capital-intensive business.