Can Netflix innovate its way to subscriber growth as its content takes a beating?

Shares took a pounding after the recent trading update showed the firm added just 2.2 million subscribers in the third quarter – but it’s still sniffing out opportunities, writes James Moore

Good only for ‘hate watching’? Lily Collins and Lucas Bravo in ‘Emily in Paris’ (Netflix)

Netflix is no longer a disruptor, however much CEO Reed Hastings would like people to believe otherwise.

Having disrupted its way into the entertainment establishment, the company is now firmly a part of it.

So how’s that working out? The most recent set figures from the streaming giant, which emerged last week, signalled an end to the pandemic driven boost it had enjoyed.

America’s stock markets didn’t react well to that, or to the warning that subscription adds may be lower early next year “as the world recovers” from the impact of Covid-19 (which it won’t necessarily do).

The shares lost five per cent and continued to drift downwards over subsequent days, although it should be noted that they are still up 50 per cent for the year to date.

There was a mildly positive sign for those nervous about the borrowing binge the company has used as fuel to finance new content. The company signalled it’s unlikely to tap the debt markets again this year.

But while Netflix mightn’t qualify as a disruptor it is still an innovator.

The company created a flutter when it ditched its free trial period, which at 30 days was a fair bit longer than the seven preferred by some of its smaller rivals.

Instead it has turned to new, and potentially smarter, means of courting potential customers. One example: offering up its home-produced films and the first episode of some of its more famous series (Stranger Things would be a good example) for free.

A more intriguing initiative is set for India, where the entire service will drop its paywall across the country for a couple of days before moving back behind it.

Asia generally is a big deal for Netlfix. It’s where the next phase of its growth is going to come from. If the experiment proves successful – and I’d be willing to bet on that happening – you can expect similar short term countrywide freebies to follow.

Of course, growing the business demands that Hastings grows the content offering for which there is an insatiable appetite. Per the current model, that means growing the debt. Netflix mightn’t return to the well this year, but it will surely return to the well at some point.

Content has lately created some problems for the king of streaming. Cuties, a French coming of age film about a dance troupe, takes aim at the sexualisation of young girls but was accused of doing that by conservative critics in the US, many of whom don’t appear to have seen it.

Calls for it to be taken down, and for a boycott of the service, demonstrated that the right can be equally as steeped in the cancel culture as those on the left it criticises.

Critics have also trashed some of the high profile recent releases. Comedy Emily in Paris, tagged as a candidate for “hate watching” by The Independent’s Fiona Sturges, is one example. She, and other critics, have been similarly unimpressed by the high profile adaptation of Daphne Du Maurier’s Rebecca.

Note to Netflix: it’s never a good idea to try and re-make Hitchcock, and especially the only film under his direction to win a Best Picture Oscar.

But while some of Netflix’s high-profile offerings have struggled on the Tomatometer, they have at least got people talking. This is one of those cases where all publicity could be good publicity. 

And every creator puts out duds. This one has had plenty of successes too. They’ve even started appearing on a few more cinema screens.

Aaron Sorkin’s well-received Trial of the Chicago Seven is one example. It’s not only subscribers hungering for fresh content at the moment given the aversion of traditional studios to releasing blockbusters into the pandemic.

If this cements a more flexible approach to the 16-week window cinemas usually demand, so much the better. Streaming is here to stay, and Netflix has become an important producer of films. Rebecca mightn’t be much cop, but there are plenty that are and would benefit from being shown on large screens at movie theatres. Their owners would benefit from reaching an accommodation with Netflix. Both have the potential to generate revenues from that happening.

Some analysts have predicted price rises to grow them as the growth in subscribers slows, especially in Netlfix’s more mature markets.

But that will disrupt subscribers. Doing so would present a risk. Netflix doesn’t lack for competition these days.