In its third-quarter earnings report release on Tuesday, streaming giant Netflix beat many expectations, but still delivered some unwanted news to investors: viewer metrics, especially in the United States, could be better.
In the report, the company reported its slowest revenue increase in years, and also revised its outlook for the year, particularly upsetting investors by saying that it is now expecting $2.7 billion in ad revenue instead of the previously projected $3 billion.
Netflix’s position as the leading subscription-based streaming service worldwide has done little to quell investor fears that it is losing viewers to the likes of YouTube and TikTok. Its stock was down more than 40% this past year, per WSJ. The slide began when Netflix announced its now-failed intention to buy Warner Bros. Discovery, which is now a part of David Ellison’s Skydance instead. The latest earnings report didn’t necessarily help that downward trend by sending the stock down almost 6%.
Going into the report, investors were already worried about viewer metrics, and specifically something called view hours growth, the amount of time viewers spend watching stuff on Netflix. Executives addressed the investors’ concerns that view hours growth was slowing down on Tuesday, and vowed to up the numbers, particularly by revamping its programming in the United States. Netflix’s programming quality has been the source of intense criticism, particularly online.
“I know that we could do better, and we want to build on that momentum,” Netflix co-CEO Ted Sarandos said in the company’s earnings call. “Now we’ve seen an opportunity to take our slate to the next level, especially in the U.S. where we can have an outsized impact when we create a big buzzy show that members love and talk about all over the world.”
That content overhaul seemingly has already started with a major restructuring decision. The streaming giant announced last week that it was laying off around 1,000 employees in what is the company’s largest headcount reduction in roughly four years. Key programming chiefs, including Netflix’s chief content officer Bela Bajaria and head of its film unit Dan Lin, were also ousted. A Variety report from Monday claims that Lin had clashed with actor-director Ben Affleck over the use of AI in his latest Netflix release. Affleck has an AI startup that was acquired by Netflix in March. It’s not clear if that reported clash contributed at all to the decision to let Lin go.
In the call, co-CEO Greg Peters described the layoffs as a “hard trade-off” in service of “long-term growth.”
No replacement has been announced yet for Lin, while Bajaria has been replaced with former Disney executive Peter Rice, whom the co-CEOs Ted Sarandos and Greg Peters spent a major portion of the earnings call praising.
“I’ve known Peter for about 15 years, and I’ve got to tell you, the outpouring of excitement about him coming to Netflix, from across the industry and from the creative community, has been nothing short of overwhelming,” Sarandos said of Rice, who also served as the president of 21st Century Fox before his role as chairman of general entertainment at Disney. “Peter Rice understands talent relations, and in a competitive market, creative talent have choices of where they want to work. We want Netflix to always be the place that they love to do the best work of their life…Now that’s a key aspect of what I believe Peter can improve on looking forward.”
Prior to the restructuring decision, Netflix also lost a couple of its big filmmaker names. The Duffer Brothers, who made Netflix’s crown jewel show Stranger Things, are now with Paramount; director David Fincher will reportedly leave when his contract expires next year; and filmmaker Noah Baumbach is heading out to Warner Bros. Also on the call, Netflix co-CEOs assured investors that the platform’s upcoming slate of releases was still exciting and star-studded, from the NFL’s first Thanksgiving Eve game to the latest Quentin Tarantino movie, and some very early Oscar contenders like the Spanish-language film La Bola Negra.
“There is no need for a fundamental shift in strategy. We do need better execution in the U.S.,” Sarandos said. “Now, the U.S. is also working; it’s just not growing as fast as it could, or as fast as we’d like.”
