The Great Cancellation

The Great Cancellation

On the heels of a terrible Netflix earnings report, CNN+ shutting down, and massive churn from people trying to save money with rising prices, we may have finally hit peak video streaming. *laughs in cable*

It shall be dubbed The Great Cancellation.

Netflix reported earnings after the close on Tuesday (4/20) and got smoked (pun intended) by 35% as the company reported a loss of 200,000 subscribers during the first quarter—the first time they've reported a loss in subscribers in more than a decade.

This was mostly due to the pullout of Russia since the beginning of the war in Ukraine. However, they also projected their subscriber count will shrink by another 2 million customers in the current second quarter.

This was the 2nd largest single day decline ever for Netflix, matching a previous 35% decline in November 2011.

Since the 2nd quarter of 2018, Netflix has traded down on 13 of 15 earnings prints. It is now trading below the pandemic lows, something I never thought would happen so quickly as the multiple continues to contract.

The stock is now down 69% (not nice) from the all-time high of $700 in mid-November, peaking right around the same time as many other tech stocks.

This is now the 4th time Netflix has seen a 65% drawdown since they went public in 2002. Every time it has hit a new all time high. Is it finally different this time? It probably seemed that way every other time if you were a shareholder. This time they are faced with much stiffer competition.

Even Bill "Hell Is Coming" Ackman threw in the towel on his Netflix investment he purchased earlier this year.

Shade was thrown at Ackman on Twitter, but I agree with Dan McMurtrie's (Ackman's burner) take on the matter. They placed a bet with a certain set of "predictable" outcomes and that outlook changed significantly, so they acted accordingly, as one should. There's no worse feeling than selling a stock at the lows only to watch it rally in your face. But there's also no better feeling than the validation that your new thesis turned out to be correct.

Now that Netflix has seen a significant drawdown on the stock and their growth has evaporated, what can they do to turn around the ship? They've already addressed some of these issues during the conference call:

• Restrict password sharing

• Cheaper ad-supported version

• Continue expanding beyond video content (gaming, merch, experiences, audio)

• Roll out traditional show release schedules to lower churn and avoid binge watching

• Stop paying so much for shitty content

CNN minus

Speaking of shitty content, CNN+, the CNN streaming app that launched a month ago, has already shut down after blowing $300 million. They lasted an entire 32 days, burning $9.375 million per day.

Instead of just rehashing the main points, I'll pass off the details to threadboi extraordinaire Trung Phan who also breaks down the similarities between recently deceased Quibi and CNN+.

When I was researching information to write on this topic and I found the following article written by CNN Business. It looks like CNN had a chance to heed their own warning, just a year and half earlier but I guess no one had read it.

None of this should really come as a surprise to anyone. Legacy news media companies like CNN, Fox, and MSNBC are on their way out. They're good for election coverage and that's about it. They are so far removed from the pulse of America and so busy in their own echo chambers that they can't even see what's happening around them (particularly with the younger generations). The youths don't watch the news, at least in this format.

It may seem like I am enjoying a modicum of schadenfreude while I write about the demise of CNN+, but there are real people behind this project who were unfortunately let go, and that sucks. However, after the Quibi and CNN+ blowups in record time, and over $1 billion spent between the two of them, I can't help but roll my eyes at their "misfortune". This should be a wake up call to all legacy media brands.

Rebundling

While cutting the cord may have saved consumers money over the first few years, many are now paying more for the many streaming services than they originally were for cable. However, one could argue the content is substantially better. The problem is there is just so much content out there spread out amongst a lot of great apps, and free ones nonetheless (YouTube, TikTok, etc.). 

I currently pay for Hulu, Disney+, Netflix, HBO Max, and Amazon Prime Video. I cancelled Apple TV+, Showtime, and Peacock because the quality of content just wasn't there yet. If I had to have only one service for the rest of my life I'd go with HBO Max (hopefully they don't add CNN+ shows) and keep Disney+ for the kids. Everything else is just a nice to have. I'm definitely starting to feel the subscription saturation though.

The interesting thing about a lot of these streaming service providers is they are add-ons to a profitable core business. Apple doesn't need Apple TV+ to survive on its own. Amazon Prime is basically an essential at this point and all Prime users get access to their free video library. While Disney has a stronghold on the most popular shows and movie franchises of all time, they've always been a well-oiled machine even before Disney+ launched.

You can't really say the same for Netflix. While they were the trailblazers who took down Blockbuster, they're now seeing the big boys take market share in a highly competitive market for eyeballs and attention.

May the best streamer win.

That's all for this week. Thanks for subscribing and sharing.