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For the first time in a decade, Netflix announced in a shareholder report this week that it lost subscribers in the previous quarter.DADO RUVIC/Reuters

Welcome to the Netflix Apocalypse – or, let’s make it snappier and call it the Apocaflix.

This week, the streaming giant announced in a shareholder report that, for the first time in a decade, it lost subscribers – 200,000 over the previous quarter – and anticipates losing two million more over the current quarter. This led to Netflix’s stock diving 35 per cent Wednesday evening, wiping out US$54-billion of its market value.

Suddenly, Hollywood – which has overhauled itself these past two years to embrace the golden promise of streaming – was on fire. And who, according to Netflix, is to blame? That would be Russia (which cost the service 700,000 members after a market pullout) and me, you and everyone we know, i.e., subscribers who share their passwords with an estimated 100 million friends and family.

Password-sharing may indeed be a problem (though certainly not a new one), and Russia represents an unprecedented situation. But the Apocaflix exists for a constellation of reasons that have little to do with Putin and/or your cheap nephew, and everything to do with how the global entertainment industry got flipped and turned upside-down during the pandemic. And things will only get messier, and more expensive, from this point. Here are five reasons why the streaming wars have descended into chaos.

Growth

Netflix co-CEOs Reed Hastings and Ted Sarandos arrive for the Allen & Company Sun Valley Conference, on July 6, 2021.Kevin Dietsch/Getty Images

Wall Street has long been bullish on Netflix because of expectations of massive growth. The service has spent mind-boggling amounts of money on content to fill its library (US$13.6-billion in 2021 alone) – an investment that was predicated on Netflix’s must-see films and series luring ever more subscribers, to the point of total market dominance. And for a while, the pandemic helped inch Netflix closer to that goal. But a few reality checks have since complicated this dream.

Market

Netflix is available in 190 countries … but not China, and that’s not set to change any time soon. This means that the service must dig harder into other territories, which is not as easy as imagined. India’s streaming market, for instance, is dominated by Prime Video and the Disney-owned Hotstar. Earlier this year, Netflix cut its costs in that country by as much as 60 per cent – but in territories where Netflix is dominant, such as Canada, it raised prices. Meanwhile, streamers of all stripes are encountering “churn,” the rate at which subscribers opt out. It turns out it is much easier for viewers to press the “unsubscribe” button on their account home page than it is, say, to call the cable company to cut the cord. Just as it is relatively easy to sign back on for a Netflix subscription when the new season of Bridgerton arrives. Speaking of …

Programming

Oh yeah, that thing. In 2017, Netflix CEO Reed Hastings (now co-CEO alongside Ted Sarandos) said that Netflix’s main competitor wasn’t television or the multiplex but sleep itself. But when you try to become everything to everyone, brand loyalty becomes a problem. Disney+ has qualified hit-machines in Marvel, Pixar and Star Wars. HBO Max – which isn’t available in Canada, though Crave carries much of their programming – has HBO’s reputation for quality television, plus Warner’s stable of film franchises, from DC to Harry Potter. Netflix has … shows that the service tends to cancel after a few seasons. A slate of critically beloved films (Roma, The Power of the Dog) that just can’t win the Best Picture Oscar the company so obviously covets. Some terrible, but apparently widely watched, Ryan Reynolds movies. And once in a while, a true cultural phenomenon like Bridgerton or Stranger Things (the latter of which is nearing its end date).

Benedict Cumberbatch in a scene from The Power of the Dog.KIRSTY GRIFFIN/NETFLIX/Netflix via AP

Netflix has wisely invested in growing its foreign-language slate (Squid Game, Lupin, Money Heist) to appeal to both North Americans bored by Emily in Paris and international audiences eager to see their worlds reflected back at them (more than 90 per cent of Netflix’s 2021 subscriber growth came from outside the U.S. and Canada). But the service’s quality control continues to be all over the map. Netflix is firmly in the quantity game, not the quality game – and audiences are starting to wise up to that fact.

Competition

And that lack of consistent quality is why the service is facing increasingly stiff competition from companies that are new to the streaming game. According to Parrot Analytics, global consumer interest for Disney+, Apple TV+ and HBO Max grew 10 per cent from the second quarter of 2020 to the fourth quarter of 2021, a period in which interest in Netflix dropped nearly the same amount. Then there is Prime Video, which feels practically free if you’re a regular Amazon customer. Oh, and there is Paramount+. And Discovery+. And many, many more.

Future

Where is this all leading? For audiences, it’s destinations both good and bad. Inflation-squeezed households will soon have a cheaper, ad-supported version of Netflix – an idea that the service long-dismissed until recently. Sensing blood in the water, Netflix’s competitors might slash their prices, too. But Netflix is also “pulling back” from its content spending – meaning fewer options for subscribers, which could also cause competitors to tamp down their budgets. Why would Disney et al spend billions trying to make bigger, glitzier series and movies if Netflix is no longer interested in waging a content war?

The domino effect of this on the industry could be especially messy. Toronto’s current studio-space boom, for instance, was built to satisfy the presumably never-ending streaming gold rush. And Netflix’s streaming-first business model has totally disrupted studios’ traditional revenue paths. See everything from Disney’s decision to send Pixar’s Turning Red straight to Disney+ instead of theatres. Or Warner Bros’ move this month to premiere The Batman on HBO Max (Crave in Canada) in half the time it would’ve taken such a blockbuster to hit home audiences just two years ago.

Expect North American theatre-owners to cheer the Apocaflix at next week’s annual CinemaCon gathering in Las Vegas. But the promises of streaming’s golden age have irrevocably tangled Hollywood in a knot of its own making. Even if dusty concepts such as ad-supported TV and theatrical-exclusive movie premieres turned out to be the best entertainment business models around, we’re too far down the streaming path to turn back now. The end of the world will be streamed – it’s just a question of who might be watching.

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