Last week, Netflix announced they would be laying off 300 employees in the company’s latest round of cutbacks, representing about 3% of the company’s workforce, reports the Los Angeles Times. Though Netflix didn’t specify departments, the LA Times says that multiple levels of employees were impacted from vice presidents on down. The majority of laid off employees are from operations in the U.S., but operations in Latin America, Asia Pacific, the Middle East and Africa will also lose employees.
“Today we sadly let go of around 300 employees,” a Netflix spokesman said in a statement. “While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth. We are so grateful for everything they have done for Netflix and are working hard to support them through this difficult transition.”
In May, the company laid off 150 employees, representing about 1% of their workforce. That announcement came about a month after Netflix reported its first quarter 2022 financials. At 9.8%, the company’s revenue growth was still positive but slower than the prior year period and lower than Netflix’s predictions for the period. Perhaps more alarming was the loss of 200,000 subscribers during the first quarter and an anticipated loss of 2 million subscribers during the second quarter.
“Our revenue growth has slowed considerably as our results and forecast show. Streaming is winning over linear, as we predicted, and Netflix titles are very popular globally,” Netflix told shareholders in an April 19 letter. “However, our relatively high household penetration ‒ when including the large number of households sharing accounts ‒ combined with competition, is creating revenue growth headwinds. The big COVID boost to streaming obscured the picture until recently.”
There were other factors impacting Netflix’s growth as well, including terminating the subscription service in Russia and the company’s January price increase.
Netflix’s bounce back plan
Netflix has a number of initiatives in the works to boost the streaming giant’s popularity with subscribers in a crowded streaming marketplace. Through strategic acquisitions like the purchase of Next Games and Boss Fight Entertainment , Netflix is betting big on mobile games. The games are free with a subscription, so they won’t generate revenue by themselves, but they could make the subscription “stickier” for subscribers on the fence about keeping Netflix versus a competitor’s streaming service.
In addition, Netflix is cracking down on password sharing. The company has 222 million paying subscribers, but they believe an additional 100 million are not paying for a subscription but are sharing someone else’s password. They are experimenting in Chile, Costa Rica and Peru to get people who are sharing passwords with people outside their household to pay for the privilege. Password sharers have two options: add subaccounts at a lower price or transfer the nonpaying viewers to a paid subscription.
“We recognize that people have many entertainment choices, so we want to ensure any new features are flexible and useful for members, whose subscriptions fund all our great TV and films. We’ll be working to understand the utility of these two features for members in these three countries before making changes anywhere else in the world,” said Chengyi Long, director of product innovation at Netflix, in a March 16, 2022 blog post.
Netflix is reportedly working on a livestreaming feature, says Deadline. A livestreaming feature would allow Netflix to air live programming such as unscripted shows and comedy specials. It would also make live competitions like The Voice or America’s Got Talent possible where viewers can vote live. Deadline says that planning is in the early stages, and there is not yet a timeline for when such a livestreaming feature would be rolled out. Netflix has not confirmed the news.
In the first quarter earnings call, co-chief executive Reed Hastings said the company is looking at an ad-supported tier. While some subscribers may jump from the higher priced, ad-free tier to the lower-priced tier, the ad-supported tier might make Netflix more affordable for price sensitive consumers.
“Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice,” Hastings said. “…allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense. So that’s something we’re looking at now. We’re trying to figure out over the next year or two. But think of us as quite open to offering even lower prices with advertising as a consumer choice.”
Layoffs are never easy, and for those impacted, it is a significant blow, especially when they see Netflix continue to make big investments while they are out of work. However, Netflix needs to cut costs and show their investors they are taking the revenue slowdown seriously. It will take a combination of actions and initiatives to increase the rate of revenue growth and put subscriber growth back on a positive track. Netflix cannot affect external factors like inflation and the war in Ukraine, but they can take control of costs and other internal factors. The layoffs are the latest step.