"The company appears to operate in a virtuous cycle, as the larger their subscriber base grows ... the more they can spend on original content, which increases the potential target market for their service," said Jeffrey Wlodarczak, an analyst with Pivotal Research Group, in a report after its recent earnings release.
Let's start with the rather bizarre claim that Netflix will "remain a hit with consumers" because it refused to launch a second ad-supported service. Taken on its own, the reasoning is hard to follow -- a second service might not be profitable but there's no reason it would turn off members -- but it also flies in the face of recent developments in the industry. The free-with-commercials model has had a big resurgence with major players like PlutoTV and Amazon's Freedive entering the streaming space and Terrestrial Super-Stations like MeTV posting extraordinary profits.
Wlodarczak added that Netflix may remain a hit with consumers because it has continued to defy calls to launch a service with commercials, even though an ad-supported plan could be cheaper. He dubbed Netflix "an increasingly compelling unique entertainment experience on virtually any device."
The claim makes no sense in terms of business, but it makes great sense in terms of story. Ads were the old way. Netflix is the disruptor. The success of the disruptor is an essential part of our modern mythology. You don't stop believing just because the evidence turns against you.
Even more central to the Netflix narrative was the role of original content. That was the competitive advantage, the secret of their success. "Secret" turned out to be something of an operative word. For years, the company managed to keep actual numbers largely out of the discourse. Recently though, the picture has started to fill in. We now know that, despite billions in production and billions more pushing these shows, originals account for only a quarter of the hours viewed and many of those shows don't exactly belong to Netflix.
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