Netflix (NFLX 0.10%) suffered its first subscriber decline in a decade during the first quarter. After two years of the pandemic driving people to give the streaming service a try, it's not too surprising that something like this happened. Some of those new subscribers were bound to be fickle.
What might be surprising to investors is that longtime Netflix subscribers are jumping ship as well. The website The Information reported on Thursday that people who have been subscribers for more than three years made up a much larger share of cancellations for Netflix in the first quarter compared to two years ago. This suggests that Netflix's problem with churn isn't going away anytime soon.
I was one of those longtime subscribers who finally threw in the towel.
Image source: Netflix.
From DVDs to drowning in bad content
I joined Netflix in 2007, back when the company was a DVD-by-mail company disrupting Blockbuster. It was a great service, and it got better when Netflix started rolling out streaming. That, of course, eventually became the company's primary focus.
For a long time, there just wasn't a good alternative to Netflix. Even as the company hiked its prices over the years, dropping the streaming service didn't make a lot of sense. It was either Netflix or cable TV, and Netflix won out easily.
Today, there are almost too many streaming options. In addition to Netflix, you have Warner Bros. Discovery's HBO Max, Disney's Disney+ and Hulu, Apple's Apple TV+, and plenty of others. These Netflix alternatives have high-quality content, and many are priced to sell.
Netflix has high-quality content, but it also has a tremendous amount of garbage (in my opinion). The company's strategy for years has seemingly been to hurl billions of dollars at anyone with a pulse capable of making a TV show. The result has been a massive collection of content, some great, but most pretty terrible.
This has been something I've disliked but tolerated about Netflix for years. That tolerance has now been exhausted. Sifting through all this content to find something good has gotten more onerous over time. I found myself turning to HBO Max or Disney+ instead. There are fewer options, but HBO tends to make mostly good shows, and Disney+ has franchises like Marvel that are unlikely to disappoint.
Another factor was kids' shows for my 20-month-old daughter. HBO Max has Sesame Street, and Disney is Disney. Does Netflix have good content for kids? Probably, but how would I even know? I'm not going to waste my time sorting through the spaghetti that Netflix has thrown at the wall to find out.
The last straw for me was pricing. The standard plan jumped to $15.49 per month earlier this year. I've accepted Netflix's price bumps up until now, but for whatever reason, this last one was the straw that broke the camel's back. I'm guessing many longtime subscribers felt the same.
Netflix's standard plan is now more expensive that HBO Max, which goes for $14.99 per month without ads. Disney+ is just $7.99 per month, and it's even less if you opt for an annual plan. You can even bundle Disney+, ESPN+, and ad-supported Hulu for less than a Netflix subscription.
Netflix had pricing power until it didn't.
NASDAQ: NFLX
Key Data Points
Netflix's growth story is on hold
A few years ago, canceling Netflix was unthinkable for many subscribers. Today, it's just not. There are so many good alternatives, and many of them are much cheaper. With inflation raging and a recession potentially looming, pricing matters more than ever.
Netflix has become really good at pumping out content, but it's not very good at recognizing what content is worth making. The company has mountains of viewership data, but data doesn't tell the whole story. Just because someone watches something doesn't mean they want more of that type of thing.
Cost-cutting, layoffs, and show cancellations are now on the table for Netflix. For subscribers, the value proposition just isn't as strong as it once was. Netflix isn't known for quality, it's known for quantity, and paying a premium price for that stopped making sense to me. If other longtime subscribers start coming to the same conclusion, Netflix could be in for a rough ride.
