Netflix: Is the Streaming Industry's Golden Child in Dire Straits?​

By BK​

What do you need to know this week?

Last week, nearly 40% of Netflix’s market value was wiped out after the company announced its historic subscriber count had dropped by nearly 200,000 since the beginning of 2022. This is Netflix’s largest subscriber loss amidst a decade of bullish growth. Adding salt to investors' wounds, Netflix announced its gloomiest projection yet.

This revelation has kickstarted a powerful snowball effect. Within the same week, billionaire hedge fund manager Bill Ackman sold his 7% stake in Netflix at a $400 million loss. Ackman bought more than $1 billion of Netflix shares in January. In addition, Netflix has announced the cancellation of multiple, in-development projects and is in the midst of an internal restructuring. Critics are concerned that Netflix’s attempt to save costs by restructuring its talent may lead to some of Netflix’s best talent getting cut - a so-called 'brain drain’ - which could detrimentally impact the development and quality of its most popular shows and movies in the long-term.

Why is this important for your interviews?

Netflix’s disastrous forecast is due to a confluence of events. Firstly, Netflix’s meteoric rise in 2019-20 has been widely attributed to the Covid-19 lockdown measures which kept people indoors and desiring other forms of on-demand entertainment. As lockdown measures have generally been eased throughout the world, this ‘controlled growth environment’ has slowly faded from view.

Secondly, Netflix has been cracking down account sharing practices in the hopes of tapping into untapped revenue and preventing widespread abuse. Netflix has also steadily hiked the prices of its subscriptions. These measures have proven unpopular with many subscribers.

Thirdly, the streaming industry is reaching saturation. Netflix faces intense competition from tech rivals, including Amazon, traditional media companies such as Walt Disney, and cash-rich newcomers such as Apple. These competitors have been aggressively cannibalising Netflix’s market lead by offering lower or comparable subscription rates and ramping up the production of ‘exclusive’ series offered only on their respective streaming platforms, for example Disney Plus’ Mandalorian. Rivals have also poached standout series from Netflix - for instance, after being on Netflix for over five years, Daredevil has made the jump over to Disney Plus.

Thirdly, the soaring cost of living and inflation in many countries has had an adverse effect on Netflix’s subscriber base as consumers make tough choices on what to spend their money on. Consumers are increasingly pushed to choose between different streaming competitors, stifling Netflix’s growth plans.

Fourthly, Netflix’s decision to pull out of Russia over the war in Ukraine cost the company 700,000 subscribers.

Finally, streaming services are not the only form of entertainment vying for consumers’ time. According to a study by Deloitte, the majority of consumers ages 14-25 spend more time playing games and watching user-created videos like those on TikTok and YouTube rather than watching films or shows on a streaming service.

How is this topic relevant to law firms?

Netflix’s bearish projections will have a downstream effect on the volume of corporate and intellectual property work that it is able to hand out to law firms. For example, in 2019 Netflix called on Latham & Watkins, Jones Day and Forsters in their acquisition of Pinewood Studios, Netflix’s first UK production hub. More recently, Skadden Arps Slate Meagher & Flom and Taylor Wessing were called in 2021 to advise Netflix on the acquisition of The Roald Dahl Story Company Limited, which manages the literary works, copyrights and trademarks of author Roald Dahl.

However, in restructuring its organisation, Netflix will require specialist employment law expertise when choosing to lay off any high ranking creators. In addition, in cancelling any current projects, Netflix may need to bolster its legal team with additional advice on how to mitigate any breach of contract claims arising from the cancellations.