Netflix says it's business as usual. Is that good enough?
Netflix says it's business as usual. Is that good enough?
Confronting the loss of subscribers for the first time in a decade, Netflix's main response seems to be an effort to crack down on password sharing among friends and family members, as well as an introduction of a lower-priced advertising tier
By Nicole Sperling and John Koblin
Published: Jul 1, 2022
People wait in a line to enter 'The Lab', Stranger Things Netflix series experience venue in Madrid, Spain on June 27th, 2022. The visit in The Lab located at the Telefónica Building is free for everyone. This is one of two experiences the Netflix series has opened in Madrid to coincide with the premiere of its fourth season
Image: Beata Zawrzel/NurPhoto via Getty Images
While being honored at the Banff Film Festival in Canada in early June, Bela Bajaria, Netflix’s head of global television, surprised some with what she didn’t say. Despite the recent turmoil at the streaming giant — including a loss of subscribers, hundreds of job cuts and a precipitous stock drop — she said Netflix was charging ahead, with no significant plans to change its programming efforts.
“For me, looking at it, the business works,” Bajaria said from the stage. “We are not doing some radical shift in our business. We’re not merging. We’re not having a big transitional phase.”
Two weeks later, after Netflix had laid off another 300 people, Reed Hastings, the company’s co-chief executive, doubled down on Bajaria’s message, reassuring the remaining employees that the future would, in fact, be bright and that in the next 18 months the company would hire 1,500 people.
To which some in the entertainment industry responded: Is that it?
For years, Netflix has been the leading innovator in Hollywood, spearheading a revolution in how people watch movies and television. Now, confronting the loss of subscribers for the first time in a decade — with more losses expected this year — Netflix’s main response seems to be an effort to crack down on password sharing among friends and family members, as well as an introduction of a lower-priced advertising tier. There is some concern in Hollywood and on Wall Street that those moves are not enough.
“I think both advertising and password sharing are nice incremental revenue opportunities that should spark more subscriptions or more revenue. No doubt about it,” Richard Greenfield, a media analyst, said. “Yet neither of those two things is Netflix’s savior. The savior to Netflix is they spend $17 billion on content, and they need more ‘Stranger Things’ and less ‘Space Force.’”
Netflix stunned the entertainment industry back in April when it announced that it would begin to show advertising on its platform. If this sacred tenet was being shattered — Hastings had long pledged Netflix would never deign to show commercials — what could be next? Would there be a serious push into movie theaters? Perhaps a change to the cadence of how shows debut, from the all-at-once binge model Netflix invented to a weekly release schedule to increase buzz and word-of-mouth anticipation? Would Netflix take a vastly different approach to programming?
Yet in the two months after the advertising announcement, Netflix signaled that no other big changes would be coming. Shows are still being released all at once, with some exceptions — episodes for the latest seasons of “Ozark” and “Stranger Things” were made available in two batches this year, separated by more than a month.
Bajaria has indicated to talent representatives that the company is, more or less, sticking with the programming strategy that she ushered in when she took her position in 2020, according to two people familiar with the conversations. That means a more traditional development process, with Netflix executives often asking for scripts before ordering a new series. And though Netflix has laid off roughly 450 full-time employees over the last six weeks, none were high-ranking programming executives, further evidence that the company remains committed to its key decision-makers. Also read: Can movie theaters save Netflix?
Netflix reached more than 221 million subscribers worldwide by taking chances: greenlighting ambitious content, paying for shows it believed in whether or not they featured big names, giving great latitude to famed directors such as Spike Lee and Martin Scorsese. Its recent stay-the-course stance has raised some concerns that a company known for its entrepreneurial thinking is moving away from that strategy.
This can be seen in, for instance, the company’s marketing budgets. In 2019 — when Disney+ and Apple TV+ were just getting started and HBO Max did not exist — Netflix spent $2.6 billion on marketing. In 2021, when competition greatly increased, it spent $2.5 billion.
Most shows on Netflix still appear on the service with relatively little outside promotion. And the streamer’s movies still receive only nominal theatrical releases. “The Gray Man,” an expensive, summer blockbuster-style film starring Ryan Gosling and Chris Evans, will debut in select theaters on July 15 before becoming available on Netflix a week later.
And, according to two people familiar with the talks between Netflix and exhibitors, there are no active negotiations regarding other potential theatrically exclusive releases. The much anticipated “Knives Out” sequel, scheduled to be released this year, will appear on Netflix after its debut at the Toronto International Film Festival. An exclusive extensive theatrical launch appears unlikely. Netflix declined to comment on its theatrical strategy.
But company executives have become much more sensitive to bad reviews, which have lately been appearing in high frequency as Netflix struggles to find a new hit on a par with “Stranger Things” or “The Crown.” (Newer content such as the film “Spiderhead” and the series “God’s Favorite Idiot” have been critically derided.) A producer who works with Netflix said the word “quality” was being bandied about much more often in development meetings.
Emily Feingold, a Netflix spokeswoman, disputed the idea that focusing on a show’s quality was somehow a change in strategy, referring to such disparate content as “Squid Game,” the reality television show “Too Hot to Handle,” and movies like “Red Notice” and “The Adam Project.”
“Consumers have very different, diverse tastes,” Feingold said. “It’s why we invest in such a broad range of stories, always aspiring to make the best version of that title irrespective of the genre. Variety and quality are key to our ongoing success.”
Indeed, the company still intends to spend some $17 billion on content this year. It paid $50 million in May for a thriller starring Emily Blunt and directed by David Yates (“Harry Potter and the Deathly Hallows”). And it plans to make “The Electric State,” a $200 million film directed by Joe and Anthony Russo (“Avengers: Endgame” and “The Gray Man”) and starring Millie Bobby Brown and Chris Pratt, after Universal Pictures balked at the price tag. The company also just announced a development deal for a television adaptation of “East of Eden” starring Florence Pugh.
On Tuesday, Whip Media, a research firm, said Netflix had fallen from second to fourth place in the firm’s annual streaming customer satisfaction survey, behind HBO Max, Disney+ and Hulu.
The most significant change coming for Netflix is its advertising tier, which, as it has told employees, it wants to roll out by the end of the year. Netflix’s foray into advertising stoked excitement among media buyers at the industry’s annual conference in Cannes last week.
“It was pretty intense,” said Dave Morgan, who is the chief executive of Simulmedia, a company that works with advertisers, and who attended the conference. “It was one of the top two or three issues everyone was talking about.”
Hastings said Netflix would work with an outside company to help get its nascent advertising business underway. The Wall Street Journal reported that Google and Comcast were the front-runners to be that partner. Still, advertising executives believe that building out the business at Netflix could take time, and that the company might be able to introduce the new tier only in a handful of international markets by the end of the year.
In the end, though, Netflix’s success will most likely come down to how well it spends its $17 billion content budget.
“Netflix, dollar for dollar, needs to do better, and that falls on Ted Sarandos and his whole team,” Greenfield said, referring to the company’s co-chief executive. “They haven’t done a good enough job. Yet, they are still, by far, the leader.”