Crossed Wires: The Netflix dilemma and the future of video

Consider the following easily imagined scene. It is after dinner. Mum and Dad sit down in the living room to watch the latest episode of season three of Squid Game on Netflix on their smart TV. Their 12-year-old son is on his bed scrolling through TikTok on his mobile, watching roller skating wipe-out videos. Their 16-year-old daughter is at her desk in her room, watching a music video of her favourite K-Pop band on her laptop while she tries to do homework at the same time.

The story of the future of video is captured in this domestic scene.

In the world of the big streamers, Netflix is the undisputed giant. It has twice the revenue, twice the subscribers and many times more hours engaged with viewers than its direct competitors – Disney, Prime Video, HBO Max and Apple TV+. It released Q2 financial results on 21 October and they were stellar: revenue of $11.1-billion (R193-billion) – up 16% – with operating profit up 7%, along with similarly happy numbers elsewhere.

I am sure there was popping of champagne at Netflix headquarters in Los Gatos after the numbers came out. But, at least for some of the executives, the celebration may have been a little tempered because there is, as always, a bigger story.

It is that the other big streamers are not the competition. YouTube and TikTok are.

Let’s start with the bigger screens – connected TVs and laptops.

Recent studies in the UK and US, from Ofcom and Nielsen, have YouTube capturing more than 12% of all video viewers (and growing), while Netflix commands 8%. In addition to these viewership numbers, there is the brute fact that Netflix’s entire library is about 37,000 hours of video – roughly the amount uploaded to YouTube every 70 minutes of every day. If you are an executive in Los Gatos celebrating your financial results, this might dampen the mood.

Why does Netflix have to respond to this so urgently? They make terrific content, win awards, have top creative talent clamouring to work with them and command a global distribution network. But the future of video is determined by the viewing habits of young people. And as we know, the viewing habits of a teenager (or even a twenty-something) are not the same as their parents’ – attention spans have been shortening for decades; fewer and fewer people watch long-form content or ongoing series, both of which are Netflix’s bread and butter.

Long-form streaming is giving way to shorter attention spans. The numbers from a number of studies are convincing. The data is difficult to extract because there is no universal definition of “long form” and “medium form” and “short form”, but Netflix has rarely trafficked in anything under about 30 minutes, whereas other platforms cater for tastes ranging from five seconds up to about 15 minutes – and beyond. Even if you ignore the age factor, shorter-form video has stolen the attention of viewers (as shown in a recent academic study from Cornell University).

Why? Because of mobile – small screen, fast scroll, dollops of dopamine-inducing video. The kids consuming TikTok-style content now are unlikely to develop a taste for the one-hour-50-minute movie or even a police procedural with 13 30-minute-episodes. These will continue to have a loyal audience, of course, but the eyeballs of the young have other seductions to consummate. Long-form and episodic video is not a fast-scaling business. Short- and medium-form video most emphatically is, and the arrival of realistic AI video generators is sure to supercharge a market that has grown up on clips.

So, imagine you are the CEO of Netflix. You really only have a few choices to grow the company. The first would be to increase subscription prices, which is risky for all the obvious reasons (such a move would hand a gift to other streamers). Or start accepting advertising – which is already under way – but that undermines the original premise of subscription-based, ad-free content and can only be pushed so far. 

Or you could buy another streamer. On 10 October the news leaked that Netflix was making a play for Discovery’s streaming studio, which includes HBO and various lifestyle channels. This would certainly grow their revenue stream but, I submit, that simply kicks the big can down the road and does not address the “attention deficit” problem in any meaningful way.

Which leaves the obvious choice – expand the line-up to include shorter-form and user-generated clips. In other words: compete aggressively with YouTube and TikTok.

How Netflix does this is not clear. Perhaps they can acquire their way into short-form competitiveness, but there is not a lot out there to buy (Google owns YouTube and they’re not selling; and TikTok US is now spoken for).

Perhaps they can start a mobile short-form division from scratch (lots of competition there, such as Meta’s Reels) or try to replicate a YouTube model. But much of this land has already been grabbed – and there is no easy way to grab it back.

Consider that the average length of a YouTube video is 12 minutes, whereas the average length of a Netflix offering is 45. And then consider a demographic raised on 10-second TikTok videos. It is clear who has the lead on the future – even if you ignore the cornucopia of different tastes and interests covered by YouTube (you will not find an instructional video on Netflix). And, of course, YouTube is free.

This leads to another conclusion – Netflix would be a wonderful acquisition target for someone else, someone already in the short-form or medium-form game. Someone like Meta or Google.

In short, Netflix’s excellence at what it does has put a target on its back. I, for one, would be unhappy to see it swallowed up, but I suspect that my young niece would be far less concerned. 

She never watches it anyway. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg and a partner at Bridge Capital and a columnist-at-large at Daily Maverick. His new book, It’s Mine: How the Crypto Industry is Redefining Ownership, is published by Maverick451 in South Africa and the Legend Times Group in the UK/EU, available now.