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Netflix appears to be in turmoil, and Wall Street is looking to its third-quarter results to determine where the streaming giant is headed next.
It’s been a busy few days for Netflix already. As a result of the biggest round of layoffs in four years, the company changed its chief creative officer, letting go of company veteran Bela Bajaria and naming Peter Rice in his place. Earlier on Monday, Netflix let go of film chief Dan Lin.
Continuing to dog Netflix are concerns about the engagement of its shows and movies, with few titles that are really popular with audiences and almost all the biggest hits showing a decrease in viewership season over season. All of these concerns, not to mention the pursuit of Warner Bros., has resulted in its stock falling more than 40% over the past 12 months.
The company’s earnings report and conference call are co-CEOs Greg Peters and Ted Sarandos’ chance to assuage those investor concerns and re-establish confidence. Here are the main questions they need to address:
What’s going on with the workers shaking up?
Netflix laid off 6% of its workforce, or about 1,000 workers. And while the company kept most of the jobs on the product, technology and HR side – mostly non-creative – they included the departure of Bajaria, as well as several other top TV and film executives.
Sarandos needs to explain to investors what this shake-up means and how the management will change under Rice. The hiring of a former Disney and Fox executive indicates a more critical eye towards quality movies and shows, but how does that translate into better results for the company?
Bajaria was also instrumental in setting Netflix’s global strategy, allowing it to grow in various markets. Will Rice be able to keep that momentum going?
And beyond Rice, who will replace Lin? The next person needs to rebuild bridges in Hollywood and make Netflix the kind of place high-profile creators want to work at.
Also, is this the last round of layoffs for the company?
How is Netflix dealing with that pesky communication problem?
The streaming giant’s struggle with communication is the narrative that won’t go away, and has been the main driver of its stock decline over the past few months.
It doesn’t help that Netflix has become less transparent over time, no longer providing regular subscription data, and even reducing its bi-annual traffic data to once a year.
While the company has maintained that it still has a clear path to growth, Wall Street is skeptical, and the recent job change is evidence that Netflix is not so confident either.
Again, that’s where Rice – and whoever he brings in to build the content team – comes in. They will be tasked with figuring out which projects to invest in and how to convert fan enthusiasm for their biggest franchises while somehow breaking down the sophomore. Netflix has had some critical acclaim — “East of Eden” received strong praise when it dropped this month, as did the new season of “The Diplomat” — but it will need a more consistent track record to steer it in the right direction.
Then there’s the drama…
What’s going on with the theater strategy?
Netflix has warmed up to theaters, with awards playing “La Bola Negra” out in theaters now and “The Further Mis-Adventures of Cliff Booth” getting the company’s Imax window in late November.
But the big bet will be Greta Gerwig’s “Narnia: The Magician’s Nephew”, a big bet on the creation of a theatrical blockbuster that could unlock a new revenue stream for Netflix. Or it could be a big bomb that will take away from the theater world.
Sarandos will likely be asked about how Netflix is setting the film up for success given its big budget — reportedly north of $250 million — and the fact that it has never released such a big movie on the theatrical stage.
How does it compare to YouTube?
Netflix has spent the year investing in creative content and podcasts – the kind of programming that has made YouTube a juggernaut. Apart from a few rare hits like Mark Rober – who play well with families – it’s not yet clear how any of this new content will fare on stage.
Are they enough to get people to spend more time on Netflix? Or would people rather watch them on YouTube?
Where does the sports and live events industry go from here?
Netflix has increasingly invested in live events such as its weekly WWE RAW show and select NFL games, including one on the day before Thanksgiving and on Christmas Day. This is an expensive build and eats into their overall content budget, and it was Bajaria’s idea that is now gone. Wall Street will be asking again if they are worth the investment, and where this is going from.
Netflix’s Sarandos has previously said that these events help with engagement, subscriber growth and customer retention. But do they offer the long-term loyalty that a steady stream of animated shows and movies can?
Events like “Skyscraper Live” are one-off cases, while its share of NFL games is only marginal compared to broadcast and even other streams like Amazon.
What is the state of the advertising industry?
One of the main drivers of Netflix’s revenue growth is its advertising business. The company expects ad revenue to double this year to $3 billion, and its goal is to hit $8 billion in ad revenue by 2030.
But a key question is whether the advertising chain is opening up the market and adding new customers or whether it is just cannibalizing its own high-end subscribers – especially as prices continue to increase. The other is whether ad revenue is growing fast enough to outweigh any slowdown in subscriber growth as Netflix reaches saturation in several markets.
What’s up with the game?
Netflix’s special window where it showed the first gameplay footage of Grand Theft Auto VI was a trophy for the streamer, getting 31.1 million views on its first day – more than anything else on the platform.
But it was also a reminder that Netflix’s own gaming intentions have been mixed. While the streamer has launched games on the platform, mostly family games or puzzles, it is still a side project for the streaming giant.
With Netflix putting its focus back on the basics – quality shows and movies – what does that mean for its gaming ambitions?
