THB # 126: Resetting AN (After Netflix)
I have, for years, been pretty lonely out on the pro-theatrical on revenues, Netflix is wildly overpriced, others can catch up, and streaming will become TV road.
All those hares who ran out ahead and argued that buying Netflix over $500 a share was not only smart, but it was way too low a price - and now, gaming! - took a nap while this tortoise passed them in January and then lapped them last Tuesday.
But the hares are awake again, and they are running as fast as they can to not only take up this ol’ hare’s position, but to top it. “Netflix is dead! Netflix sucks!”
Here is the skinny (forgive me if i am repeating some things)… Netflix is still Netflix. What it needs to change, it needed to change 3 years ago. What works, works. What doesn’t work has not worked for years already. And both the working and the not working is going to change a bit every single year.
We all need to learn to separate the ingredients when we are cooking. Business is complex. The human desire to have a godhead and The Answer makes our analysis confused and inaccurate.
Netflix, like every company, is a stew. And the stew has become - as has been the inevitable result of choices that Netflix has made and successes they have had - gigantic and beyond the management of one or two godheads with a half-dozen baby godheads beneath them.
Here’s the thing about a gigantic pot of food. Stuff gets in it.
Peanut butter is one of the most controlled foods in the FDA list; an average of one or more rodent hairs and 30 (or so) insect fragments are allowed for every 100 grams, which is 3.5 ounces.
The typical serving size for peanut butter is 2 tablespoon. That means each 2 tablespoon-peanut butter sandwich would only have about eight insect fragments and a teensy tiny bit of rodent filth. (“Filth” is what the FDA calls these insect and rodent food defects.)
The same is true of Netflix. Or any company pushing out a lot of anything.
Everything finds a way to call itself “Organic” now. But what it meant to people a few years ago was not only the details of ingredients but the care taken with the process.
Kim Masters did a really well-reported gossip piece about Netflix today. Fun. Informative. But like much gossip (even the high-end stuff), mostly irrelevant.
However… what was instructive was something that the piece sidesteps a bit, but is an absolute truth of any business. Without making a judgement between Cindy Holland and Bela Bajaria, Holland was there for the growth and got to be part of the big transitions that kept the company alive when it was threatened, then to give away a lot of bigger-than-ever presents to a lot of talent, got the joy of the baby’s first steps, and created new ways to celebrate victories.
Bajaria has been there for the period in which she is responsible for tightening things up, which has been going on for a lot longer than the last week. Bajaria has, to be fair, also given away a lot of presents… but not as many, in a much more competitive market, and not necessarily to the same people came to expect that Netflix was “easy.”
The last 18 months of Netflix and Bajaria has not been about the growth excitement of the previous decade. It has been about a maturing company that was suffering some of the growing pains that maturing companies suffer. Those pains were not put on blast like the good ol’ can’t-miss days. They were hidden. And the stock drop exposed many of them.
I am amused to know - to the degree we really know - what the machinations of some of the change at Netflix have been. But I could also not care less. All that matters, when the rubber meets the road, is the public-facing reality.
And I have bad news for everyone who wants to pretend that Netflix was a sensational content company for the 7.5 years before Bajaria landed… it wasn’t. It was mediocre… very much like now.
The content, like the platform, had first mover advantage. They broke new ground in choosing and funding content in the amount to match or surpass 2 or 3 legacy distributors combined. They put out some great stuff. And unlike broadcast - and like HBO and other pay-cable channels - Netflix got to let their freak flag fly, aka, you could say, “fuck” and then show people demonstrating the word as a verb.
I would argue that America was ready for some more adult voices and unregulated Netflix could offer that… and in much more variation and quantity than HBO and the other legacy pay-tv outlets.
House of Cards and Orange Is The New Black were a really nice kick off. But quality was not the driver of Netflix growth. I am not judging Cindy Holland, but she didn’t make The Office or any of the licensed hits that dominated Netflix viewing hours for many of her years. Nor did she develop the ton of cheap pick-ups from other countries that Netflix bought and stuck its name on, but really had little or nothing to do with creating or producing. Nor does Bajaria have hands tightly on all of the content that flows onto Netflix now.
The opening of the International market for Netflix is what led to massive expansion. First, the domestic subs doubled from 2011 to 2015. But then, going global, Netflix had more international subs than domestic in 2017.
Would Netflix have been better splitting the job between 2 people, one building international while the other maintained domestic? Probably. They are complications with that as well. They want worldwide hits. Perhaps the biggest mistake was believing that one person with one voice could effectively service the tastes of the entire world.
By the way, this issue finds its way to Scott Stuber’s office as well. An excellent executive. But not studio chief (for lack of a better term) plays brilliantly to all fields. And it is really unfair - no matter how many 0s on his paychecks - to expect Scott to play brilliantly to all fields. And even speaking to his commercial sensibilities… he got the job because he knows how to engage audiences, not because he is Mr. High Quality. Finding that audience IS high quality in most distributors’ eyes.
Regardless… splitting the job is not what they did. Not either woman’s fault.
Suggesting that Netflix content has dropped off in quality significantly since Bajaria took over is a bit like the forced perspective that Peter Jackson used for the hobbits in the Rings saga. Bajaria walks into a job where her role is besieged with a ton of new money in the market, new streamers, new angles on streaming, and politics attached to content in a way we haven’t seen in the industry before. Unlike Holland, she can’t buy every single thing just because she wants it and can outbid anyone else.
This doesn’t mean Bajaria is a better exec than Holland. Or worse. They served at very different moments of Netflix’s maturity. Not apples and oranges… but surely, at least, apples and pears.
Content will always be an issue at Netflix. But the stock price didn’t fall like (enter obscene joke of your own here) because the shows are suddenly not good enough. Or because they have failed to create much long-lasting IP.
You know, the great programmers in TV history have 4 or 5 great years… and then their voice gets old. The very greatest of all time might have had a decade.
Norman Lear, perhaps the greatest sitcom producer of all time, went from 1972 (Sanford & Son) to 1990 (227)… and hasn’t had a single original hit show in the 32 years since. Dick Wolf created Law & Order in 1990… amazing run. The L&O brand has been magic and in the last few years, he Exec’ed the Chicago brand and now FBI. He has also had 25 shows that he couldn’t get past their initial buys by the various buyers. 3 amazing brands in 30 years… but no range and lots of failure trying to stretch.
This is the business we have chosen.
Tastes change. Bajaria might not be the right person for Netflix, just as Holland might have not been the best to take programming into the next era… regardless of whether there were juicy gossipy reasons for the Holland change. Or maybe they are/were both the best possible options on the planet now and then. The only way to measure is results… but not all results are created equal.
Ted Sarandos has done really well for himself and for the company. But he has never appeared to be a real magician. Reed Hastings has been there behind the curtain and I am comfortable that there are a bunch of executives who could, given the financing, do what Ted did, perhaps better... certainly many much worse. The point is not to drag Ted. But his time may be over at Netflix. Time for a different kind of leadership (which requires The Mighty Oz to buy in and butt out). Ted is not dragging the company down. He doesn’t need to be kicked. But that phase of Netflix’s history may be over.
Anyone who has seen entrepreneurial companies mature knows this song. Leadership grows rich and fat (not literally) and focused on the micro issues of the company that are more important to them. And the whole market changes while most people who do one thing really well don’t do the next thing really well.
But Ted, too, is not why Netflix finally crashed down to a reality for which most others would still kill.
What I am seeing all over the industry and media is a playing out of grievances that are being unreasonably connect to the Netflix stock price fall.
I have “told you so” a lot about Netflix over the last decade, but I have never been one of those “this is the singular failure” or “this is the singular source of success” about Netflix or really, any other company. It‘s not a good or accurate way of seeing companies.
We can’t avoid this moment of finger pointing and mockery. But in the meantime, there are people who need to do a lot better job of separating the groceries.
Streaming is not a bad business. It’s just not the panacea that people convinced themselves it was… and which many knew was no panacea from the start.
The is no alternative to Streaming as a part of The Future. Cables and satellites and to a great extent, broadcast, make no sense as we move into the future. The internet is undeniable. Everyone who talks about what the consumer wants is kinda full of shit. But within the bounds of what is being made available for the consumer, they do have the most powerful voice.
Commercial-free vs ad-based streaming will be shaking itself out for the next 5 years or so. The future of cable/satellite is critical to the speed of future progress in streaming. Quality internet access, in America and across the globe, will be a key to the future of streaming. How sports play internationally is going to be very important for many streamers. Disney’s bundle will be more successful in some parts of the world and Warner Bros Discovery will have its strong holds and Netflix may or may not be the most universal of the streamers (which is not to leave out Universal and Peacock.)
The one good thing, to me, that has come out of this stock price crash is that eyes are opening to a wider array of possibilities for all these companies right now.
Netflix will rise again. But will it ever achieve God-like status?
It never should have.
Doesn’t make it anything less than a leading, solid, growing company that isn’t going anywhere anytime soon. Sorry, haters.