Intro: Considerable Consequences
Can a 12-word tweet encapsulate the shortcomings of a $250 billion company? Given how oddly specific this question is, you probably assume the answer is yes. And you’re right!
And given that you’re reading this article, you’ve probably guessed the company in question is Netflix—the Silicon Valley disruptor behind Trainwreck: Balloon Boy and Trainwreck: Poop Cruise.
The tweet in question comes from an obscure account called mr. trophy and reads, “well, well, well, if it isn’t the consequences of my own actions”—a sentiment relatable enough to garner 250,000 likes and 116,000 reposts.
So how does all of this relate to Netflix? Well, the DVD-mailer-turned-streamer is currently reckoning with some sizable consequences: The company’s stock price is down 34% year-to-date, it recently laid off 1,000 employees, and it fired both its chief content officer and head of film. Amidst this institutional reckoning, the fundamental question is how Netflix got to this point. What decisions precipitated such a fall from grace?
So today, we’ll examine Netflix’s structural failures, the strategy that led to its current predicament, and how the company lost its lead in the streaming wars.
How Netflix Lost the Plot
While Netflix can be accused of many things, skimping on content isn’t one of them. In fact, the streamer’s spending on TV and film production dwarfs that of its competitors, to the tune of $17.7 billion in 2025 alone.
In a perfect world, there would be a linear relationship between content expenditure and the viewership these programs ultimately receive. If a streaming service increases its annual spending by 30%, you would expect viewing hours to increase by a predictable amount.
Unfortunately for Netflix, increased spend has started to yield diminishing returns. In 2021, the platform spent roughly $79,000 for every 1 million hours watched. Since 2024, however, that figure has steadily climbed, with Netflix shelling out $88,000 for the same amount of viewing time.
There are two equally valid explanations for this pattern:
This was inevitable: most companies will typically hit diminishing returns when it comes to growth, especially as their addressable market becomes saturated. Netflix is running out of new subscribers to acquire and may be exhausting its options for increasing engagement.
The content is performing worse: Ultimately, Netflix’s films and TV shows are what convince people to subscribe to the platform and, more importantly, to stick around. While I could go to great lengths to complicate the streamer’s business model, there is probably a direct relationship between programming quality and user engagement. Which brings me to the question we’ll focus on for the rest of this essay: Is Netflix’s content offering impacting financial performance?
Perhaps the most damning data point surrounding the streamer’s programming is the recent decline in viewership between its shows’ first and second seasons. From 2022 to 2024, roughly 65% of first-season viewers returned for a show’s second season. In 2025, however, that figure plummeted to 40%. Mind you, this was for programming that had ostensibly become more expensive to produce.
So what explains this decline? Does Netflix simply have too much content, or does this drop-off reflect subpar programming? Both explanations can be true, but there is definitely a relationship between quality and viewer retention. Over the past decade, we see a meaningful correlation between a show’s IMDb rating and the share of viewers who stick around for season two.
This graphic also shows how crucial the jump from Season 1 to Season 2 really is. Once viewers make it through Season 2, they’re far more likely to stick around for Seasons 3 and 4.
So if quality plays such an important role in retaining viewers, have Netflix’s shows gotten measurably worse? And could this explain the diminishing returns of the streamer’s production spending?
In short, yes. Netflix’s TV shows have seen a sizable dip in acclaim, with fewer series earning an IMDb rating above 7.0—a reasonable threshold for a well-received program.
Anyone who regularly tracks streaming data knows that Netflix excels at promoting new series. The platform features a show on its home screen, propels it into its vaunted Top 10 carousel, and—boom—millions of people tune in. This phenomenon occurs regardless of critical acclaim. But convincing someone to watch a show’s first season (or episode) doesn’t mean they’ll return for its sophomore installment.
Meanwhile, Netflix’s competitors have been gaining ground. The platform’s domination of Nielsen’s weekly Top 10 rankings has eroded over the past two years, coinciding with the aforementioned dip in acclaim.
My two cents is that the streamer simply hasn’t produced enough buzz-worthy content—the kind of word-of-mouth phenomenon that spends multiple weeks atop the Nielsen charts (like Adolescence or Squid Game).
Worse still, this quality decline has coincided with numerous price increases, meaning subscribers are paying more for a service that, by many measures, delivers less.
As a result, consumers have started looking elsewhere for entertainment, causing Netflix’s TV viewing market share to decline over the past nine months. An overly simplistic takeaway from this chart is that consumers are abandoning an expensive platform that delivers mediocre content, instead migrating to free services like YouTube, Tubi, and the Roku Channel.
Taking a step back, I realize I’ve gone to great lengths to demonstrate something fairly simple: Netflix’s TV shows have simply gotten worse. But for years, the streamer seemed determined to test the limits of how much cheap, mediocre television its audience would tolerate, gradually drifting away from the prestige programming that made it so exceptional in the first place.
These days, Netflix’s weekly Top 10 looks a lot like the History Channel or HGTV. Gone are idiosyncratic offerings like House of Cards and Orange Is the New Black that made the streamer special (circa 2017). There’s nothing inherently wrong with lowbrow television, but it should be one piece of a broader offering. Instead, these subpar series have become a larger part of the Netflix experience, making its ever-rising subscription price harder to justify.
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Final Thoughts: The Failings of Moneyball
Like any stats nerd, I love Moneyball and the statistical revolution it spawned. But as someone who also enjoys things that aren’t statistics, I frequently wonder how much Moneyball-ing of a given subject is too much Moneyball-ing.
When I worked at DoorDash, we routinely grappled with this question when it came to restaurant selection—a problem that has many parallels to Netflix’s content catalog optimization.
Like Netflix, it costs DoorDash money to bring restaurants onto its platform. These costs include sales commissions, time spent courting prospective partners, and financial sweeteners for big-name merchants. And so the question always came down to: is signing [insert name of the best restaurant in your city] really worth all the hassle? Is it okay to lose money to partner with [insert name of popular franchise chain]?
When I first joined the company, I assumed the answer was “no.” Like the Oakland A’s in Moneyball, I thought you could recreate one incredible restaurant by bringing on 20 mediocre restaurants. Then I was tasked with building a restaurant valuation system to support the company’s sales team (which reads like a flex but is relevant to this topic!). After three years of working on that problem, it became very clear that nothing replaces an exceptional restaurant. A beloved merchant like Cheesecake Factory or Portillo’s brought network effects that were extremely valuable to DoorDash—it legitimized the brand, encouraged customers to sign up, and led them to stick around. The value these restaurants provided was so great that you could never truly quantify the impact—you just had to accept that it was the right thing to do.
Netflix seems to have disregarded these same network effects. For example, visibly promoting a show called Trainwreck: Poop Cruise (probably) affects people’s perception of your product—an intangible factor that may lead to subscription cancellations after your next price increase. Or maybe slashing your film budget and refusing theatrical commitments will lead filmmakers to eschew your platform, costing you a viewer demographic that wants to watch a certain type of movie. And perhaps 20 Monster serial killer shows will never be as valuable as a buzzy hit like Adolescence. I could go on and on, but it boils down to this: in the short term, Netflix got the viewership it wanted through cheap-to-produce shows, but lost out on the tentpole series and prestige movies that spreadsheet math cannot value.
With one strategic misstep after another, these network effects slowly compounded in ways that couldn't easily be measured—until one day, people simply stopped watching or paying. And guess what? The company has no one else to blame—it’s simply the consequences of their own actions.
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What's surprising to me is that Netflix doesn't seem to benefit more from three things you'd expect:
1) economies of scale/network effects as its audience grows
2) AI making content production cheaper
3) years of accumulating viewing data making it better and better at predicting what people actually want to watch.
You'd expect all three to give Netflix an increasingly strong advantage, but apparently not.
The data might not be available, but I'm curious if the season 2 to 3 audience retention compared to season 1 to 2 is confounded by shows not reaching season 3. That is, if a show is good enough for a season 3, then perhaps it doesn't have the same drop from 1 to 2. Conversely, if shows with big drops 1 to 2 are canceled, then if they were given a season 3 they might pull those 2 to 3 numbers down more.