In its third quarter earnings report release on Tuesday, streaming giant Netflix beat many expectations, but still delivered some unwanted news to investors: viewership metrics, especially in the United States, could be better.
In the report, the company reported its slowest revenue growth in years, and also revised its outlook for the year, particularly upsetting investors by saying it now expects $2.7 billion in advertising revenue instead of the previously projected $3 billion.
Netflix’s position as the world’s leading subscription-based streaming service has done little to allay 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 the WSJ. The slide began when Netflix announced its now-failed intention to buy Warner Bros. Discovery, which is now part of David Ellison’s Skydance. The latest earnings report didn’t necessarily help this downward trend by sending the stock down nearly 6%.
Going into the report, investors were already concerned about audience metrics, and specifically something called viewing hours growth, the amount of time viewers spend watching things on Netflix. Executives addressed investors’ concerns that growth in viewing hours had slowed on Tuesday, promising to boost numbers, particularly by revamping its programming in the United States. Netflix’s programming quality has been the source of intense criticism, especially online.
“I know we can do better, and we want to build on that momentum,” Netflix co-CEO Ted Sarandos said in the company’s earnings call. “Now we saw an opportunity to take our slate to the next level, especially in the US, where we can have an outsized impact if we create a big buzzy show that members love and talk about all over the world.”
This content processing has apparently already begun with a major restructuring decision. The streaming giant announced last week that it was laying off about 1,000 employees in what is the company’s biggest reduction in headcount in about four years. Key programming executives, including Netflix’s chief content officer Bela Bajaria and head of its film unit Dan Lin, were also fired. A Variety report from Monday claimed that Lin 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 unclear if the reported clash contributed at all to the decision to let Lin go.
In the call, co-CEO Greg Peters described the layoffs as a “tough trade” in the service of “long-term growth.”
No replacement has yet been announced for Lin, while Bajaria has been replaced by former Disney executive Peter Rice, who co-CEOs Ted Sarandos and Greg Peters have called for a large portion of the earnings.
“I’ve known Peter for about 15 years, and I have to tell you, the outpouring of enthusiasm 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 president of 21st Century Fox before his role as president of general entertainment at Disney. “Peter Rice understands talent relationships, and in a competitive market, creative talent have choices where they want to work. We always want Netflix to be the place that they like to do the best work of their lives… Now this is a key aspect of what I believe Peter can improve on looking forward.
Before the restructuring decision, Netflix also lost some of its big filmmaker names. The Duffer Brothers, who made Netflix’s crown jewel show Stranger thingsare now with Paramount; Director David Fincher will reportedly leave when his contract expires next year; and filmmaker Noah Baumbach joins Warner Bros. Also on the call, Netflix co-CEOs assured investors that the platform’s upcoming slate of releases was still exciting and strong, from the NFL’s first Thanksgiving Eve game to the latest Quentin Tarantino film, and some very early Oscar contenders like the Spanish-language film. The Black Ball.
“There is no need for a fundamental shift in strategy. We need better execution in the United States,” Sarandos. “Now the United States is working, too; it’s just not growing as fast as it could, or as fast as we’d like.”