It wasn’t so long ago that leaders across many industries declared that they wanted to be “the next Netflix.” Netflix is among the brands that represent the great tech disruptors—or, at least, they used to be seen that way. Nowadays, though, it doesn’t seem that Netflix still holds up as the poster child for tech innovation. So how is it that this disrupter has become the struggling incumbent in a matter of years? And how can they find new footing in the market?

Even when Netflix shifted from their original service model—the home delivery of DVDs—to online streaming, they maintained a consistent vision: making access to home entertainment more convenient. To that end, their growth strategy was pretty straightforward. They leveraged a proprietary algorithm to create an experience based on viewers’ preferences, brought in new (and then produced original) content, gained new subscribers, and expanded globally. 

Along that path, though, Netflix’s unique technology and disruptive approach stopped being unique and disruptive. In their 20ish-year history, they have gone from the original streaming service to one of many similar options. Let’s consider some of the signals that point to Netflix’s decline, and some strategies they could consider to rebuild their relevance. 

Telltale Signs of a Market Leader’s Slowdown:

Weakening Engagement
Netflix’s successful disruption invited a proliferation of other streaming services within the market. While Netflix remains the preferred provider, the marketplace is becoming increasingly crowded, and yet their offerings remain largely undifferentiated—depending on who has the newest/hottest TV shows and movies, but this is not a lasting competitive advantage. As market share spreads thin across many competitors and as streaming becomes commoditized, it’s no surprise that Netflix has lost around 600,000 subscribers, making 2022 its most significant year of attrition in 10 years. Viewers now have many virtually interchangeable streaming options; loyalty to Netflix isn’t guaranteed.

Slowing Growth
Rate of growth can be measured in many different ways, and for Netflix, it’s measured by comparing the acquisition of new subscribers and revenues to that of previous years. In April 2022’s shareholder letter, the company revealed that their year-over-year percentage of growth for both figures has dropped. Although Netflix is still growing and still profitable, the speed at which they grow is slowing and is projected to continue to slow down.

Declining Share Price
Shareholders who invested in Netflix stock were buying into the promise of its future potential for growth. Now, as the Netflix stock price has dropped by 71% since 2021, we’re seeing waning evidence of shareholders’ belief in the future potential of the company. When shareholders believe they can get better future value elsewhere, they sell, and the stock price drops. What’s missing is a compelling  narrative of how Netflix will lead and profit from the next evolution of the industry. 

Netflix is a classic example of a market leader that has lost relevance in its own industry. Their response is also typical: double down on a once-successful (but now-stale) strategy that fails to realize how fundamentally their customer and marketplace has changed.

They’re trying to recapture lost revenue by getting tough on password sharing, and committing to what worked in the past: more and better content (whatever that means). Meanwhile, they’re keeping their efforts to evolve away from the core business, in this case by launching a new gaming offering. While these tactical responses are OK, they fail to address the fact that this is an existential moment for Netflix. They are in need of some soul searching to figure out their next move, or all their hard work to define and lead the industry they once disrupted will go to waste. 

Options for Finding a New Footing in the Market:

Reconnect to Purpose
Originally, Netflix was solving for viewer convenience. Thanks to them, it has never been easier to sit on your couch all day, uninterrupted, and stare at a screen. Netflix’s current purpose is to give you “access to best-in-class TV series, documentaries, feature films and mobile games”—which speaks to what they are, but not why they exist. Their technology, algorithm, and content are barely differentiable and make for a weak purpose. Netflix needs to reevaluate its capabilities.

Focus less on iterating the parts of the business that have become commoditized and focus more on the new and unique value they alone can provide.

And they need to do it better than anyone else. 

Lean Into What Isn’t Working
Netflix is cracking down on password sharing in an attempt to protect their profitability. And I get it: stealing isn’t cool. Yet it seems harsh (and short-sighted) to punish people when so many value the service as a welcome source of joy and relief. According to our research, friends and family see and treat Netflix as a platform for deeper connection. They talk about what they’ve watched. They watch together. And when they can’t, they trade passwords on one platform for access to another. 

Lots of companies find that their product or service is being used in a way that was not its original intent. Instead of correcting or policing password sharing, Netflix has an opportunity to understand it.

Netflix could uncover new opportunities to better serve viewer needs if they went to these groups of friends and family members to understand why they share passwords, how they benefit, and what else they might share. 

Build Community, Not Just IP
Greek and Roman theatre are among the earliest analog forms of this media. Their purpose was always entertainment, but there was also a cultural and social exchange that took place—and this is still the case today. People come together to share reactions, couches, and even passwords over a streaming TV series. Given the history of entertainment, this behaviour says more about our loyalty to one another than it does about our loyalty to a streaming brand. While Netflix’s brand and technology carries significant intellectual property, what makes it relevant is the community that supports it.

Putting it differently, finding new and different ways to convene community makes intellectual property sticky.

A great example is the H&M X Stranger Things collection, made possible by Netflix. Listening to, understanding, and fostering community, fan clubs, or interest groups: these activities provide a rich source of inspiration for future opportunities and meaningful growth. 

Netflix isn’t the only market leader struggling. We are seeing this with other unicorns and disruptors of industry, as well as long-time incumbents. Once the promise of tech and market disruption or leadership is achieved, the work must begin again. This means getting to know the people they serve anew, and figuring out, once more, how to serve them better.

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Is declining rate of growth or relevance keeping you up at night? Let’s help you find some new footing in the market—get in touch or book a call today.

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