Netflix misses its subscriber growth target—again. Welcome to the chaos era of streaming

With Apple and Disney’s streaming services just weeks away, the streaming wars are going to be more dramatic than you ever imagined.

Netflix misses its subscriber growth target—again. Welcome to the chaos era of streaming
[Photos: Tall Girl: Patti Perret/Netflix; Stranger Things and The Politician: courtesy of Netflix]

For the last eight years, Netflix seemed to have it all figured out. “More shows, more watching; more watching, more subs; more subs, more revenue; more revenue, more content,” chief content officer Ted Sarandos told New York magazine less than 18 months ago.


So, uh, what happens when that nifty little flywheel jumps its chain and spins out?

Netflix fell short of its subscriber growth goals for the second quarter in a row, and it’s blaming that U.S. price increase from earlier in the year as well as “very small movements in churn” that had a “meaningful impact on paid net adds,” as the company stated in its quarterly letter to shareholders.

We’re two and a half weeks away from the launch of Apple TV+, less than four weeks from Disney+ going live, and theoretically seven months from HBO Max, Peacock, and Quibi formally entering the streaming wars. Yet here, today, with far less competition, “very small movements in churn” prevented Netflix from finding 220,000 new subscribers to meet its goal. In the United States, Netflix could only add 517,000 new subscribers for the quarter versus its target of 800,000. Despite Stranger Things season 3 being “the most watched season to date with 64m member households in its first four weeks”; despite its original movie Tall Girl attracting 41 million viewers (because of TikTok?); despite the much-ballyhooed debut of its first series from Ryan Murphy, one of its high-priced showrunners (Murphy’s The Politician was curiously not mentioned either in the shareholder letter or on the earnings video), these unbelievable hits and flashy launches couldn’t scare up a couple hundred thousand new folks to sign up and stick around as paying customers until September 30.

Netflix now wants to be Amazon

Although the company’s leadership appeared unfazed in its earnings video, sloughing off the news and trying to pivot the conversation away from the one metric—subscriber growth—that it’s told everyone for years is the only number that matters, Netflix conveyed a more measured tone in its letter to shareholders. In fact, with competition looming, Netflix took pains to explain the basics of its business:

We strive to program Netflix with the best variety of high quality content across many genres (scripted series, films, docs, comedy specials, unscripted TV, kids & family, anime, etc.). Our ambitious approach reflects our goal to satisfy the entertainment desires of our 158m-plus members and to attract as many of the hundreds of millions of non-members as we can. To accomplish this, we need great breadth of quality content because people have very diverse tastes. If you think about your own habits, you’ll recognize that what you want to watch on a Friday night may differ from what you want to watch on Tuesday after a long day of work or what you want to watch with your family on Saturday morning or what you want to watch with your friends on Sunday afternoon. Now, multiply that by the billions of people on the planet and all the other factors that affect viewing preferences and you will have a sense of the breadth of programming necessary to be as successful as we desire.

More than eight years after Netflix started its originals strategy, it now feels the need to step back and justify why Netflix wants to be everything to everyone.

In other words, this is Netflix’s Amazon moment.


The retail and cloud computing giant is renown for saying that it’s always Day One, which basically boils down to remaining obsessed with the customer. More important, though, as Amazon CEO Jeff Bezos wrote in his 2017 annual shareholder letter: “Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”

Netflix has hit the reset button in how it’s going to define and rationalize its content expenditures. With Apple, Disney+, AT&T, Comcast, and Quibi joining Amazon, YouTube, Hulu, and, hell, all the stuff Netflix usually likes to say is its competition—from gaming to traditional television to sleep—it is now Day One and not Year 12 of the streaming era.

That means that we can expect more quarters like this one not only for Netflix but for everyone.

Chaos theory

Netflix’s CFO stated Wednesday evening that the company has “seen some elevated churn, ticked up and sustained, and there’s potential for that to continue.”

You said it!

Think about it this way: Netflix is now ardently trying to meet every possible need for every possible viewer at every possible time of day and day of the week. It’s selling this offering for $13 a month, about one-quarter less than a “skinny bundle” of streaming TV networks like YouTube TV and one-sixth to one-tenth less than a high-end cable package. That’s one whole dollar more than it was earlier this year. One dollar that could have tipped a barista or purchased a few bananas but instead would garner that potential viewer a premiere of a TV show, movie, or special about five times a week. What a bargain. But even then, this deal of a lifetime could not convince this sliver of folks to commit to Netflix long-term, by which I mean until September 30.


What then is going to happen when it’s not just Netflix premiering new content five times a week? When Disney, Apple, and so forth are also wooing people to sign up with shiny new offerings? In a world where it’s rather easy to cancel and sign up for a streaming service with a couple of clicks?

The streaming wars are not going to be a war so much as a chaotic series of battles day by day, perhaps even hour by hour, to hold onto customers who can ruthlessly hop between services the same way that they used to flip channels. The days that will likely end up being most important will be at the end of the quarter. But really, there won’t be a single day that won’t be a vicious fight to keep people away from the cancel page.

That is a very different business, for Netflix and everyone else, from “more shows, more watching; more watching, more subs; more subs, more revenue; more revenue, more content.” Netflix may have touted that it had its best quarter in coming closest to predicting how many subscribers it would add, but those days are almost certainly now over. Customers will be more fickle and less predictable than ever. Which means the multibillion-dollar enterprises chasing the future of entertainment will be more volatile than ever, too.

How will these businesses react? It’s not a stretch to believe that they’ll keep raising prices—not only because they’ll need to in order to pay for all this content but also because they’ll now want to be judged on their margins and revenue per user, not subscriber growth. They’ll likely make it harder to share passwords (something alluded to by Netflix execs Wednesday afternoon), and maybe they’ll end up making it less easy to cancel, too. Perhaps these rising costs will be hidden in bundles of streaming services that seek to stabilize customers’ ruthlessness in flitting from buzzy prestige drama to guilty-pleasure competition show to movie event.

In September, Netflix CEO Reed Hastings said, “It’s a whole new world” when asked about the new streaming competition. On the earnings call Wednesday, he clarified that he was being “playful” in referencing the “sense of the drama of it coming.”

Netflix’s earnings show that the new world is here, it is dramatic, and Day One is going to be stormy. And damn if it might not end up looking like the old world—cable TV—before we’re through.