Business Wars: Netflix and the Fall of Television | The Game Changer | Episode 1 Summary
Hosted by David Brown | Released May 21, 2025
Introduction
In the inaugural episode of Business Wars, Wondery's Business Wars delves into the tumultuous journey of Netflix as it navigates the rapidly evolving landscape of the television and streaming industries. Titled "Netflix and the Fall of Television | The Game Changer | 1," this episode explores pivotal moments, strategic decisions, and the challenges Netflix faced in maintaining its dominance amidst rising competition and changing consumer behaviors.
1. The Shonda Rhimes Deal: A Turning Point [00:00 - 05:45]
The episode opens in the fall of 2016, highlighting a strategic move by Netflix's Chief Content Officer, Ted Sarandos, to secure a multi-year overall deal with Shonda Rhimes, the powerhouse behind ABC's Grey's Anatomy. This unprecedented $150 million deal marked one of Hollywood's largest overall agreements and signaled Netflix's serious intent to rival legacy studios.
Notable Quote:
- Shonda Rhimes [02:34]: "One thing you need to know up front is that wherever I sign my next deal, I'm not making another Grey's Anatomy."
This deal was pivotal as it underscored Netflix's shift from merely licensing content to producing original programming, leveraging data-driven insights to craft stories without the constraints of traditional network television.
2. Navigating the COVID-19 Pandemic [05:45 - 15:37]
The narrative transitions to April 2020, detailing how the COVID-19 pandemic inadvertently bolstered Netflix's subscriber base. Lockdowns worldwide led to increased streaming as people sought entertainment at home. Netflix experienced a record addition of 16 million new subscribers in the first quarter of 2020, bolstered by viral hits like Tiger King and Love is Blind.
Notable Quote:
- Reed Hastings [15:21]: "Time in over a decade."
Despite the pandemic aiding Netflix's growth, Sarandos and Hastings were cognizant that this surge would be temporary. They anticipated a slowdown as lockdowns lifted, setting the stage for future challenges.
3. The Rise of Streaming Competitors and Content Cliff [15:37 - 31:52]
As the pandemic waned, Netflix faced intensified competition with the launch of Disney+, HBO Max, and Peacock. These legacy studios began leveraging their vast content libraries and exclusive programming to attract subscribers. A significant issue arose as popular shows previously licensed to Netflix, such as Friends and The Office, moved to their respective platforms, creating a "content cliff" for Netflix.
Notable Quote:
- David Brown [04:13]: "You're certainly saying all the right things."
This strategic shift forced Netflix to accelerate its investment in original content to mitigate subscriber losses and fend off competitors.
4. Pricing Challenges and Subscriber Losses [31:52 - 15:37]
In response to slowing growth projections for 2022, Netflix announced a price increase from $13.99 to $15.49 per month. This move, aimed at compensating for anticipated subscriber declines, backfired when Netflix reported losing subscribers for the first time in over a decade.
Notable Quote:
- Reed Hastings [15:21]: "Time in over a decade."
The decline was attributed to increased competition, illegal password sharing, and geopolitical tensions like Russia's invasion of Ukraine, leading to a significant drop in Netflix's market value.
5. Crackdown on Password Sharing and Monetizing Non-Subscribers [16:58 - 34:12]
Netflix shifted its strategy by targeting password sharing, previously encouraged by Reed Hastings as a growth tactic. In May 2023, Netflix began enforcing stricter policies, limiting account sharing to household members and introducing a surcharge for external users. This move led to a surge in new subscriptions as freeloaders were converted into paying customers.
Notable Quote:
- David Brown [09:21]: "It's a hard reminder about something many businesses would rather not deal with: value leakage."
While this provided a short-term boost, it did not address the underlying need for continuous content innovation.
6. Introducing the Ad-Supported Tier [34:12 - 41:31]
Facing escalating costs and the need for new revenue streams, Netflix ventured into the advertising domain. In mid-2022, Netflix partnered with Microsoft to launch an ad-supported subscription tier priced at $6.99 per month. This move marked a significant departure from Netflix's ad-free legacy.
Notable Quote:
- Ted Sarandos [05:45]: "We're also prepared to offer you a lot of money."
However, the initial rollout saw limited success, with only 9% of new US sign-ups opting for the ad-supported plan, and many existing subscribers downgrading their plans rather than attracting new users.
7. Resurgence through Content and Licensing Deals [41:31 - 31:52]
Netflix's fortunes began to turn with the unexpected resurgence of the canceled show Suits. Streaming platforms, particularly Netflix, leveraged their sophisticated recommendation algorithms to resurrect forgotten hits, significantly boosting viewership and subscriber numbers. This resurgence was part of what Sarandos termed the "Netflix effect," where strategic content distribution could redefine cultural relevance.
Notable Quote:
- Ted Sarandos [XX:XX]: "It's Netflix's broad base of subscribers and its powerful recommendation algorithm that popped a modest cable hit into the center of the culture."
Additionally, in December, Disney reversed its previous stance and renewed licensing agreements with Netflix, restoring access to beloved shows like Lost and Grey's Anatomy, further rejuvenating Netflix's content library.
8. Venturing into Live Sports: Trials and Triumphs [31:52 - 45:02]
In a bold move to diversify its offerings, Netflix entered the live sports arena. The initial attempt with a boxing match between Jake Paul and Mike Tyson faced technical difficulties, causing frustration among viewers. Learning from this experience, Netflix meticulously planned subsequent sports events.
By Christmas 2024, Netflix successfully streamed NFL games without technical issues, demonstrating improved infrastructure and reliability. This venture not only attracted sports enthusiasts but also added a new dimension to Netflix's content portfolio, resulting in a significant subscriber increase and solidifying Netflix's position as a multifaceted entertainment provider.
Notable Quote:
- Brandon Reeg [31:52]: "Don't mess up. Yeah, exactly. Don't mess up."
Conclusion: Netflix's Ongoing Battle and Future Prospects
By the end of 2024, Netflix had surpassed 300 million subscribers, buoyed by strategic content licensing, the introduction of an ad-supported tier, and successful forays into live sports broadcasting. However, the episode underscores that Netflix's journey is far from over. With competitors like Disney and Warner Bros. Discovery continually innovating, Netflix must persist in evolving its strategies to sustain long-term growth and industry leadership.
Final Quote:
- David Brown [45:02]: "Growth often follows risk."
Production Credits
This episode was meticulously crafted with contributions from:
- Story by: Austin Rackless
- Sound Design: Kyle Randall
- Voice Acting: Cat Peoples
- Fact-Checking: Gabrielle Drollet
- Producers: Tristan Donovan (Yellow Ant), Kate Young
- Managing Producer: Desi Blalock
- Senior Managing Producer: Callum Plenty
- Senior Producers: Emily Frost, Dave Schilling
- Producer Emeritus: Karen Lowe
- Executive Producers: Jenny Lauer Beckman, Marshall Louie
Disclaimer
The episode features dramatized recreations based on historical research and may not capture exact dialogues. All advertisements and non-relevant sections have been omitted to focus solely on the core content.
Stay tuned for the next episode where Disney takes on Netflix, leveraging its brand and content library to challenge Netflix's dominance.