Netflix Isn’t in Trouble Without ‘Friends.’ It Just Has to Work Harder

With plenty of competitors set to launch, and shows like Friends and The Office leaving its service, it’s easy to think that Netflix is in trouble. And it is—to the extent that its status as the dominant player in this field is slipping, as seen in its sluggish growth and loss of almost 130,000 subscribers last quarter. But there are many reasons to believe the company will avoid a mass subscriber exodus as Disney+, HBO Max, and NBCUniversal and Apple’s streaming services all launch in the near future.

As the experts mostly agree, original programming will likely be the ultimate determining factor in which streaming platform reigns supreme, but many questions remain as to how Netflix can remain there.

“[The second-quarter] news has nothing to do with competition, since Apple, Disney, HBO Max, etc. Still have not launched in the market,” says Dan Rayburn, principal analyst at research firm Frost and Sullivan. “Content is king, especially original series that consumers can binge. As Netflix ramps up original content releases for Q3 and Q4, subscriber growth should return. It’s a bad quarter for them, absolutely, but they are still far, far ahead of the other services in the market.”

So, that poor performance, which should be offset thanks to the July success of Stranger Things and a sluggish start to summer at the box office, shows that Netflix is in for a tougher road ahead, but isn’t out of the game.

Here are some of the reasons why the loss of popular licensed shows and looming competition don’t spell doom and gloom for Netflix, and how it can improve its content and corporate behavior to keep growing:

Losing ‘Comfort-Food Content’ Isn’t a Dealbreaker

Based on reports from Nielsen and other analyses, as well as Netflix’s own admission, The Office and Friends were among the service’s most popular programs. The exact data is still mysterious, though—in regards to The Office, Netflix only said, “In 2018, it was streamed for over 52 billion minutes, and in April 2019, it was viewed nearly twice as much as the next most-viewed program on [streaming video on demand].”

But that only tells the public how it fared in comparison to other shows, not the total share of streams. The popularity of Friends is also still a mystery, though as Jeffrey Cole, founder and director of the USC Annenberg Center for the Digital Future, points out, “The fact they’d pay $100 million for one year of Friends shows how much value they put on it.” A new poll of over 11,000 Netflix subscribers by research firm MoffettNathanson showed that out of the 20 most popular shows on the service, 15 were originals, with Orange Is the New Black and Stranger Things leading the way. Of the four licensed shows on the list, The Office and Friends were at nine and 10, respectively, behind other Netflix originals and the catch-all category of “movies.”

“It’s popular but does it make you stay?” Says Rayburn. “Popular doesn’t matter—you simply care whether or not that content is a driver to keep a subscriber or to lose a subscriber. I don’t know anybody who’s going, ‘I’ve got to sign up with HBO Max because they have Friends.’”

There’s Lots of Competition But Few Details About It

Of the many upcoming streaming services, only Disney’s has offered concrete details surrounding its launch. We know it will debut Nov. 12, will cost $6.99 per month, and feature the company’s backlog of movies, including its Pixar, Marvel, and Star Wars catalog. NBCUniversal says its service will come with two options, a free ad-supported version for cable subscribers and a premium tier, price to be announced but rumored to be $10 to $14, for ad-free viewing and those without cable.

HBO Max will reportedly cost $16 to $17 a month, with HBO’s back catalog and many Warner Media shows including, as per its corporate parent AT&T’s announcement, Friends, The Fresh Prince of Bel-Air, and Pretty Little Liars. “The three biggest pieces of content that makes their service so revolutionary. You’re HBO and you’re leading with that?” Says Rayburn.

Apple TV+, meanwhile, doesn’t have a set launch date, price, or any information on how people who don’t have Apple devices will be able to watch it. The only announcements so far are a handful of original shows and deals with the likes of Oprah, Steven Spielberg, J.J. Abrams, and Jennifer Aniston.

While it appears Disney+ will be a hit, it also doesn’t seem positioned as a Netflix killer. “The only one who brings anything special to the party is Disney ’cause they’re the only studio that ever had a brand,” says Cole. “The $6.99 is a brilliant number. I don’t think people make the decision, ‘Netflix or Disney.’”

Netflix Is Improving Its Original Content (But Still Has Work to Do)

Once all the services are up and running, the deciding factor of how people spend their money will come down to the quality, quantity, and consistency of original content. Netflix is obviously doing very well with programming like Orange Is the New Black and Stranger Things, but it will need modify its approach to keep people from canceling and renewing their subscriptions between services when the most buzzed-about shows come out.

“Everybody’s competing now for the same eyeballs and the same dollars,” says Rayburn. “Consumers are not going to sign up for 10 services, so they’ll have to pick and choose what content they want, because these services are all creating what looks like really good original content. Hulu noticed people starting and stopping their live service all the time. Basketball season picks up and they take it for two months then stop for three. It’s very easy to switch, which is great for consumers. They’ll jump and jump and jump.”

Netflix has already started its transition from a “breadth and depth” service with tens of thousands of titles to a more selective, curated library, which presents both problems and opportunity.

Netflix had nothing but green fields when it was “whoever’s better at figuring out how to stream smoothly was going to grab the whole market,” says Stephan Paternot, the CEO of Slated, an online film-financing marketplace, pairing projects with investors and distributors. “’Phase one,’ as I call it, was to grab as much streaming subscriber-ship as you can in the world. ‘Phase two’ is, ‘How do we make the best content, and now be cost-effective about it?’ Netflix is discovering that making a thousand shows so you can find 10 good ones is very capital inefficient. How are they all going to scale up their content to appeal to audiences of different languages, cultures, interests, on a global level?”

Cole agrees that Netflix will have to be better about its costs but sees a different solution than continuing to produce so many shows. “Netflix has to make less and better programming. HBO does more with $2.5 billion than Netflix does with $12 billion,” he says. “One thing I think is interesting is their phenomenon of not letting many series go beyond the second or third season. That’s kept them from stockpiling a hundred episodes of a show like The Office.”

Even though it’s losing shows like that, the years of having them are invaluable to Netflix. “As legacy television programs are pulled by conglomerates building their own streaming platforms, Netflix is going to rely on the viewing data they have collected while having these licenses to guide their programming development, as far as genre, producer or known talent,” says Eleanor Patterson, assistant professor of Media Studies at Auburn University. “Consider, for instance, the Netflix deal with Adam Sandler or their investment in teen television and films. These were direct results of their user data on licensed programming like Sandler films or classic teen comedies from the 1980s and 1990s.” After all, we all saw how well Sandler’s latest movie, Murder Mystery, performed globally.

Netflix Can Always Create an Ad-Supported Tier

It might not sound like a popular idea, but going with an ad-supported version might be a great business move for Netflix. “Nobody likes commercials, but if you want to go from 150 million subscribers to a billion, you’re going to have to find a way to give people a taste of your service for an extended period of time for free,” says Paternot. “Spotify is getting everyone hooked with unlimited usage, but the service is so damn good that 50% of people purchased the subscription. Hulu is accomplishing the same thing. They’re doing well with the ad-supported side, but there’s enough reasons to subscribe with higher definition and commercial-free.”

It Can Also Keep Licensing Content, Big and Small

Even with the high-profile departures of sitcoms and the Disney catalog, there is plenty of film and television out that’s not controlled by any current or upcoming service. Cole has one suggestion in mind: “If I were Netflix, I’d lock down Sony and Paramount as fast as possible.”

It can also make deals with smaller production companies to fill any content voids. “They’re figuring out what the studios long ago figured it out, which is, ‘It’s easier for us just to make a dozen really, really big features that travel really well and we’ll just work with specialty companies in the market to fill the more niche content, the more prestige stuff,” says Paternot. “The studios acquired and partnered with all these different smaller production companies, but then even over the last two decades, have been dismantling them. Netflix has been building up their infrastructure to handle big, medium, and small projects. It still has an advantage in its ability to monetize medium to small that the bigger studios don’t have yet. It’s time for them to start pivoting [to that] and batten down the hatches.”

Finally, Netflix Can Bank on Loyalty

The MoffettNathanson poll of Netflix users showed that they’re a loyal bunch, even if the costs were to rise: “26% of survey respondents reported they would tolerate a $1-2 increase while a further 28% would be willing to pay over $2 more.” (That number doesn’t account for the 14% of users who use a Netflix account paid for by someone else, which stems from the yet-unsolved issue of password sharing among users.)

Cole refers to people sticking with a service or brand they know and enjoy, despite minor changes, as “inertia.” As he points out, “There are still 2 million people who subscribe to AOL to get email.”

Overall, he says Netflix will be fine, a sentiment Rayburn, Paternot, and Patterson agree with, but it will have to work smarter than ever before to compete. “My view is not that they’re going to disappear, but they’re going to be one of several services now and that’s going to make it harder to grow the way they have. They don’t own the party now.”