The Netflix Bubble Is Finally Bursting

The days of seemingly unlimited new content from the streamer appear to be ending.

A red balloon with a white "N," with a needle pointing at it, against a black background
Getty; The Atlantic

Ten years ago, Netflix started offering its subscribers exclusive TV shows (we all, of course, remember the hit series Lilyhammer). An approach that at first seemed like a fad quickly yielded a handful of awards juggernauts—and then became a model for the entire TV streaming industry. For the past decade, the company has spent freely to fatten its library, eventually making hundreds of shows and movies a year, with the goal of staying ahead of its many online rivals. During this seemingly never-ending era of “peak TV,” the questions about the company’s future have been the same: When will the torrent of offerings slow down? And just how disappointed will viewers be when it does?

The answer to the first question appears to be soon, if not now. Last week, Netflix announced that, in the first quarter of this year, paid subscribers declined for the first time in more than a decade. It also predicted a drop of 2 million more during the second quarter and said the company would begin exploring a lower-priced, ad-supported version. The ensuing stock tumble erased more than $54 billion in value in a single day, along with the image of invincibility Netflix has always projected. The company had likely promised investors that all the money spent on original programming would lead to subscriber growth for many, many years ahead. Netflix has nearly 222 million subscribers around the world, more than any other streaming company, and just last month it was forecasting eventually growing to half a billion. Now the arrow is pointing in the opposite direction.

The quarter’s decline could have been dismissed as a hiccup, because Netflix has suspended operations in Russia, but the future projections suggest that this is no aberration. Instead, the company is signaling a crackdown on password-sharing alongside that ad-supported subscription plan, looking for ways to drum up revenue that go beyond simply adding new viewers. Perhaps even more significant, CFO Spencer Neumann said that the company was going to begin “pulling back” some of its spending on TV and movies, suggesting that the days of Netflix writing massive checks for obscure passion projects could be over. The company has broken into the awards conversation in recent years by bringing in top-tier directors and funding projects that traditional studios had balked at, such as Martin Scorsese’s The Irishman and David Fincher’s Mank. Though it has yet to win a Best Picture Oscar, Netflix has been a powerhouse for grown-up movies not worried about having big opening weekends. But that bubble might be about to burst.

In a time when other streaming companies are spending staggering amounts on their biggest projects—Amazon’s The Lord of the Rings television show has a roughly $465 million price tag for one season—Netflix’s pullback could be a canary in the coal mine for any “spend now, make profits later” strategy. Still, competitors such as Amazon, Apple, Disney, and Warner Bros. Discovery (which owns HBO Max) are much more diversified, and their stock prices are not entirely tied to one number. Netflix’s are.

Disney has theme parks, Amazon and Apple are tech giants, and even Warner Bros. seems to be remembering that there are perks to releasing a film in theaters and making hundreds of millions of dollars before it debuts on a streaming service. The Batman, the highest-grossing 2022 release so far, has made more than $750 million globally, and exclusively dropped on HBO Max last week; that double-dip of profits is something that Netflix, which has largely eschewed theatrical releases, cannot enjoy.

More money can certainly be made on the margins. Netflix estimates that some 100 million of its users share passwords, and is now testing services that make users pay a fee for adding members to their accounts. The company could also stand to trim its lavish spending on awards season. And as terrifying as the subscriber plateau may look to advertisers, no company comes close to the kind of market share Netflix has on streaming original content. Even a cutback on TV-show spending would still mean plenty of new shows each year from the company, possibly with a little more emphasis on quality over quantity.

The bigger challenges are more existential. For years, Netflix thrived because it was doing something the competition hadn’t considered. Now many media companies are throwing money at development deals to pad their streaming libraries and have glitzy new offerings for subscribers every week. Netflix lacks proper curation for its glut of titles, and streaming megahits are now spread out over several networks, so subscribers have more flexibility with where they spend their monthly fees. Ten years ago, Netflix was in the vanguard; today, the challenge is not to grow, but to make its existing service still seem valuable. That means the next decade of streaming could look very different from the past one.