I've been bored this afternoon, so I spent a little time digging through Netflix's annual reports to see if I can find an explanation for why a drop in subscribership cratered their stock.

Wanna see what I found? Too bad, you're gonna. (thread 🧵)

Let's start with a basic overview of their business. Netflix streams video content to paying subscribers over the Internet. In 2021, they brought in $29.7 billion in revenue. Streaming revenue accounted for 99.4% of that (the other .6% was DVD rental - yes, they still do that).

That sounds like a lot, right? But a comparison of their gross revenue (money that comes in) to their net income (money that's left after expenses) reveals that most of it goes right back out the door. Out of that $29.7B of revenue, they only held on to around $5.1 billion.

So where does all that money go? The vast majority goes to "cost of revenues," which is accounting-speak for money you had to spend to make money. For Netflix, that means licensing content and operating the infrastructure to stream it. They spent $17.3 billion on that in 2021.

Next question: how does a company that only nets $5B a year spend $17B a year on content licensing?

The answer is: they borrowed it. Netflix has spent the last decade borrowing like crazy. At the peak, in 2020, they held more than $16 billion in long-term debt.

And of course, when you borrow money, eventually you have to pay it back. Most of Netflix's debts won't come due until 2028, but starting then, they have some big checks they're going to have to write over the next few years.

You may have noticed that their debt obligations in 2028 & 2029 are in the $4-5B per year range.

In other words, they are going to have to make debt payments close to or equal the ENTIRE ANNUAL NET INCOME they make today.

And there is the thorn in the rose. For Netflix to comfortably be able to pay those debts back, it would ideally have significantly more net income than it does today. They could MAYBE make those payments with the income level they have today.

But if income goes DOWN? Gulp.

To increase income, Netflix has to increase revenue. And in their current model, the only way to increase revenue is to get more subscribers. They HAVE TO GET MORE SUBSCRIBERS to make their nut.

Which is why traders flipped out when they LOST 200,000.

If Netflix's growth has peaked, they will have to find some other way to make those payments. A few options are obvious.

One is to cut back on developing original programming. Turning some of that big red "cost of revenue" slice back into net income could help a lot.

(But original content is what draws subscribers, at least in theory. So there's a Catch-22 here: you're not getting enough subscribers; you cut programming expense to cover the shortfall; now you're getting even fewer subscribers.)

Another option is to find a way to squeeze more money out of EXISTING subscribers. Which is probably why Netflix raised its subscription prices last month.

And the final option is to find a way to make money off people who aren't interested in subscribing under the current model. Which explains Netflix's sudden interest in lower-cost, ad-supported plans, even though founder Reed Hastings famously hates ads.

So that's the story. Netflix borrowed a lot of money to build their service. Soon, they're gonna have to pay it back. But unless they can find a way to radically increase their subscriber numbers, or to squeeze more money out of existing subs, that's gonna be hard to do.

(p.s. I miss the days when I could just post stuff like this to my blog, writing threads sucks)

@jalefkowit this is building up to some kind of "The Producers" ploy, i feel it

Couldn't you have a blog on the fediverse (like and just boost it?

@dheadshot I guess I could. I've been meaning to look into writing a Fediverse connector for WordPress for years

Really interesting analysis! I like too; I switched over to it from WordPress.

@jalefkowit so post it to your blog? At least also. Interesting read, not too long. I’d read a blog with that.

Guessing I’m not the norm but I’m really enjoying blogging and reading blogs again.

@swansinflight The main problem is just that my blog has been idle for too long. Maybe I'll do something about that, dunno

@jalefkowit 2017? Meh it’s fine. I bet it’s still in some feed readers 😆

I mean, I just started 2 and am shocked that anyone views then at all, but I’m guessing not every view is a bot.

@swansinflight There's like 17 years of old content still there, most of it's not terrible, feel free to browse 😀

@jalefkowit I had a bit of a look, on holiday with family so have bookmarked 😊

@jalefkowit @swansinflight Idle since 2017 is nothing to be ashamed of. It’s your blog, it has 17 years of history – that’s where your new blog posts should be published on, not on a new project.

In case your blog is not that active anymore anyway - maybe it's worth to take a look at #Plume, @jalefkowit?
It's another ine of these protocols that make up the #Fediverse - along with #PeerTube, #Funkwhale, #Lemmy etc. Plume's superpower is federating blogs - so any fedi user can just follow your blog and see new posts and even comment them from e.g. their #Mastodon timeline :mastolove:

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@jalefkowit There’s an ActivityPub plugin for WordPress that let’s any WordPress blog “join the federation”.

Also, great write-up.

Also, Pleroma gives its users 5000 characters to write posts. In Markdown even.

Just saying. ;-)

@jalefkowit My hot take is that if you post an intro post like the one you did and then just a link to your blog instead of the text "Thread here" I would just go check the blog anyway since I was already going to unfurl the thread with the same click.
The only issue there is you don't get the one-two-punch of seeing fedi-related comments and replies at the end of the thread but perhaps some Wordpress plugin?

@orangestar1 the lack of blog is more inertia than any deep strategic plan. I actually have one, it’s just covered in dust bunnies. But there’s 17 years of content on it, so if you want more from me, you’re in luck 😄

@jalefkowit thanks for this insights.

As to your blog vs. threads: there is “write freely” ( A kind of blog engine that connects directly into the fediverse. The character limit, or why you have to write a thread) is afaik a Mastodon property.

@jalefkowit Thanks for the thread. That explains it for me. I noticed that Netflix is now going on a hunt for those who share passwords. I guess they are hunting for pennies and nickels wherever they can find them.


I agree threading is kind of an annoying way of reading. I think it's reasonable user experience to post a summary to a short message service and with a link to the blog post.

@jalefkowit I think it's bears mentioning that they only lost subscribers because they threw out 700 000 Russian accounts, otherwise they would have gained 500 000

@somegirlblr My figures came from their annual reports. Their most recent one was filed on January 27, a couple months before they stopped doing business in Russia. Russian subscriber losses will be in addition to the figures I noted, and will show up in this year’s annual report when they file it next January.

@jalefkowit this thread has made me even that much more excited about canceling my netflix and setting up a proper pirate media station system.

@jalefkowit the other takeaway I am hearing is that netflix is super vulnerable to a short squeeze, gamestop style.

@jalefkowit A couple of thoughts:

1. Tech companies tend to build themselves up by grabbing as many users as possible and hoping "vendor lock-in" will keep people from switching. That doesn't work with Netflix, since customers can easily buy other services and cancel their Netflix accounts.

2. Netflix's reliance on original programming to draw in subscribers is probably what's hurting it the most. It's led to a policy of "fad chasing" that doesn't build a sustainable long-term fan base.

@chronrevisited @jalefkowit I’m not at all a typical subscriber but I found it wearying how Netflix became like the worst of the network exec days when a series could last a grand total of 10 episodes after a lot of buildup

stock market meta, profit-making, spitballing solutions, not that capitalism needs help with that 

@jalefkowit wouldn't it be possible to just...make less net income...and potentially zero net income, if necessary for a decade or a few years or become a wholly debt-free entity, at which point they have profit margin again?

...essentially, given the numbers, all that happens is "temporarily less profit"?

It's not like they're trillions in the hole and still spending double their budget. And it's not like they aren't managing to scale better than literally all of the other megacorps. Their value is in the subscription model that continues to put monthly operating costs into the bank.

The real risk imo is overcorrecting and turning the user leak into a hemmorage. By doing something like ads by default, or over-pruning their original content.

Prices are...approaching unreachable...for significant portions of their customer base, so they need to tier it to be more expensive for resolutions above hd, or for someone to look at the numbers and realize that lowering prices would bring in re-subscriptions at the same time that hd tiers get added. Because people who care about hd (who have new hardware that matters) will pay an extra %, but people who have to choose which service to keep from the rapidly-increasing list of "original content" sources...the cheaper option has an edge in those decisions.

stock market meta, profit-making, spitballing solutions, not that capitalism needs help with that 

@jakimfett The problem is:

1. They make money by getting subscribers;

2. They get subscribers by owning content you can't watch anywhere else;

3. Content gets stale, people want a constant flow of new stuff, if they don't get it they cancel their subscription.

So it's kind of a treadmill. They couldn't just stop making content, because they'd lose their subscriber base.

profit-making, netflix corp meta, scaling costs & tiering 

@jalefkowit yeah...

...which is why my comment was "over-pruning" instead of something about "cut it all completely". Nuance there, yeah?

Pruning OG content carefully (they have data to see what their core subscriber base deems re-watchable) keeps their new-content core happy, while adding increased profits from hdphiles & home theatre types (3d, interactive, etc as addons), and creating basic plans (kids shows or documentaries only, pick three categories, per-channel finish-one-to-access-another tv even) give them vastly broadened subscriber bases.

The financial algorithmn is nontrivial to solve, no way would this be easy, but Netflix built a culture of accepting change. Unlike many other orgs, they have an affinity for antifragility which makes it possible to lose significant percentages of a userbase without it being a terminal velocity indicator.

Obviously, time will tell for certain.

My experience scaling orgs tells me this will depend on whether the original culture, or micromanglement, has become the dominant form of internal governance within whoever does leadership there these days.

@jalefkowit they could also license some of their old streaming stuff to other providers. Might be a market on send of the cable channels?

Also what's wrong with blogs? They still work don't they?

@jalefkowit Thank you. The most informed thread on the Netflix situation that I've seen all day!

@jalefkowit Could they raise the funds some other way, e.g. if they're publicly traded, issue more stock?

@Ertain They can always issue more stock! But that dilutes the value of existing stock, which existing shareholders don't like. And potential new shareholders may be wary to buy in if the pitch is "please help us avoid this gigantic iceberg we've spent the last decade steering towards." They may want to see new management before they'd be willing to buy in.

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