Netflix Now Has 100 Million Subscribers. This Is What They Have To Do Next.

Stranger Things via Netflix. We heart Winona.

The road ahead does not look like the road behind.

by Todd Lombardo

As remarkable as Netflix is, they haven’t innovated as much as you think — at least from the front end. It’s still TV shows and movies. We do have them to thank for making binge-watching a thing, as well as making Winona Ryder a thing, again. But that all started with Heathers.

So…thanks Netflix!

However, Netflix has done incredible work behind the scenes. They have built a streaming platform to allow millions of people to simultaneously watch high-bandwidth content on-demand. No small feat. Their use of data to make programming decisions is now legendary; we wouldn’t have House of Cards without it. And they’ve given creators massive flexibility, including not requiring a pilot before committing to a season.

Based on where you get your Netflix news, this week is either a very good week or a sorta bad one. Netflix missed its growth numbers; but profits look good, and that 100 million subscriber goal should be achieved by the weekend.

Netflix symbolizes the creative destruction currently underway in the modern media entertainment business. Across the board, linear TV subscribers are falling (see ESPN), fewer are watching those second- and third-tier cable shows, cord-cutting really is a thing, and skinny bundle is officially part of the lexicon.

But Netflix has a tough road ahead, and it’s going to have to act differently than how it has so far. There’s a diminishing return on subscriber growth, and there’s only so much content one viewer can watch.

These are five areas that Netflix — and all entertainment companies — better be thinking about.

Who is going to watch all this content?

via eMarketer.

There was an under-reported headline last year from eMarketer that stated: growth in time spent with media is slowing. A few months later, Netflix revealed it was going to invest $6 billion in content in 2017. And The Hollywood Reporter tabulated that there would be 500 original shows this year. When were we planning to watch all these shows? The answer is: we’re not. Our TV time is shrinking and our mobile time is growing. For every Stranger Things, there are shows we’ve never heard of. And there are all those videos over on Snapchat. That’s the nature of the content beast in 2017. This year, Netflix is launching 71 original shows. A greater percentage of them are going to have to be hits to keep up this level of investment and viewer growth. And marketing really matters in the making of a hit. This hit-to-miss metric is one I would be watching.

The data pie narrows.

Successful shows attract new subscribers and keep existing ones. This is Netflix’s business model. As Netflix dives deeper into the data to unearth new segments (e.g. teen angst via 13 Reasons Why), their going to have a harder time finding new segments that haven’t already signed up. Yes, there are 7 billion people on earth, everybody loves TV, and many have Internet; but Netflix is going to have to keep feeding the content beast to keep its subscribers growing.

Syndication suffers.

Netflix’s formula for success has been pretty simple: give everybody something to watch. This has been done via making great originals, and providing access to syndicated content. That second part, about third-party content, went great until it didn’t, and these days, people argue whether Netflix is the monster that’s eating Hollywood. Netflix delivers revenue and audiences (yay!), which is how they landed many of the third-party shows in the first place. But at the same time, companies handing over content to Netflix realized, hey, wait a second, we need our content for our own streaming service. This is why Netflix is being so aggressive with originals.

The tentacles of Amazon.

Amazon isn’t always first to market, but if they want something badly enough, they tend to get it right eventually. See their Oscar wins for Manchester by the Sea — beating Netflix. See their streaming of NFL Thursday Night Football — beating Twitter. Amazon is reportedly spending $4.5 billion on content this year, and will not go quietly into the night. And Amazon has millions of Prime members, probably the most successful loyalty program in history. Netflix does not.

Cracking China.

For all the headlines Netflix got last year for expanding to 130 countries, the one missing on the list was more interesting: China. Netflix all but admitted that it has failed to gain access to China’s 1.4 billion potential viewers. Streaming services like Youku Tudou and Tencent Video are huge in China; it’s just a matter of whether Netflix or anyone else will ever be able to make inroads. Consider this unfinished but necessary business.

There’s more. Like the whole day and date theater problem, where Netflix wants movies to be available on the same day in all formats, while powerful theater owners understandably want exclusive windows. Amazon has played nicer in this arena.

It’s hard to see the road ahead. Back in ‘95, nobody knew what Amazon would become, including Amazon. Netflix’s Reed Hastings is sure to have something up his sleeve, because 100 million subscribers only sounds good until you say 200 million.

Todd Lombardo is a digital media adviser and strategist at Mistress.