Netflix says it’s Business as Usual. Is that good enough?

While receiving a tribute at the Banff Film Festival in Canada in early June, Bela Bajaria, head of global television for Netflix, surprised some with what she didn’t say. Despite recent turmoil at the streaming giant, including lost subscribers, hundreds of job cuts and a sharp drop in stock, she said Netflix was moving forward, with no significant plans to change its programming efforts.

“For me, seeing it, the business works,” Bajaria said from the stage. “We are not making a radical change in our business. We are not merging. We are not having a great transition phase.”

Two weeks later, after Netflix had laid off another 300 people, Reed Hastings, the company’s co-CEO, doubled down on Ms. Bajaria’s message, assuring remaining employees that the future would indeed 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 the way people around the world watch movies and TV shows. Now, facing subscriber loss for the first time in a decade, with more losses expected this year, Netflix’s main response appears to be an effort to crack down on password sharing between friends and family, as well as introduction of a lower-priced advertising level. There is some concern in Hollywood and on Wall Street that those moves may not be enough.

“I think both advertising and password sharing are good incremental revenue opportunities that should drive more signups or more revenue. There is no question about it,” said Richard Greenfield, a media analyst. “However, neither of those two things is the savior of Netflix. Netflix’s savior is that they spend $17 billion on content and need more ‘Stranger Things’ and less ‘Space Force.’”

Netflix surprised the entertainment industry in April when it announced that it would start showing advertising on its platform. If this sacred tenet was breaking (Mr. Hastings had long promised that Netflix would never deign to show commercials), what could be next? Would there be a serious push in theaters? Perhaps a change in the cadence of how shows debut, from the all-at-once binge model Netflix invented to a weekly launch schedule to build buzz and word-of-mouth anticipation? Would Netflix take a very different approach to programming?

However, in the two months following the announcement, Netflix signaled that no other major changes would be forthcoming. The shows still release all at once, with a few exceptions: Episodes from the last few seasons of “Ozark” and “Stranger Things” were made available in two batches this year, separated by more than a month. Ms. Bajaria told talent representatives that the company is more or less sticking to the scheduling strategy she introduced when she took over in 2020, according to two people familiar with the conversations. That means a more traditional development process, with Netflix executives often requesting scripts before commissioning a new series. And while Netflix has laid off roughly 450 full-time employees over the past six weeks, none were senior programming executives, further evidence that the company remains committed to its top decision-makers.

Netflix reached more than 221 million subscribers worldwide by taking risks: green-lighting ambitious content, paying for shows it believed in whether or not they featured big names, giving big leeway to famous directors like Spike Lee and Martin Scorsese. His recent stay-the-course stance has raised some concerns that the company, known for its entrepreneurial thinking, is backing away from that strategy at a time when it might be better to lean on it.

This can be seen, for example, in the company’s marketing budgets. In 2019, when Disney+ and Apple TV+ were just getting started and HBO Max didn’t exist, Netflix spent $2.6 billion on marketing. In 2021, when competition sharply 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. For example, “The Gray Man,” an expensive summer blockbuster-style flick starring Ryan Gosling and Chris Evans, opens in select theaters on July 15 before becoming available on Netflix a week later. And, according to two people familiar with discussions between Netflix and exhibitors, there are currently no active negotiations regarding other possible exclusive theatrical releases. The long-awaited sequel to “Knives Out,” which is slated for release later this year, will appear on Netflix following its debut at the Toronto International Film Festival. An exclusive wide theatrical release seems unlikely. Netflix declined to comment on its film strategy.

But company executives have become much more sensitive to bad reviews, which have been popping up all too often lately as Netflix struggles to find a new hit on par with “Stranger Things” or “The Crown.” (More recent content like the “Spiderhead” movie and the “God’s Favorite Idiot” series have been criticized.) A producer who works with Netflix said the word “quality” was used much more frequently in development meetings.

Emily Feingold, a Netflix spokeswoman, disputed the idea that focusing on a show’s quality was in any way a change in strategy, citing content as disparate as “Squid Game,” the reality show “Too Hot to Handle ” and movies like “Red Notice.” and “The Adam Project”.

“Consumers have very different and diverse tastes,” Feingold said. “That’s why we invest in such a wide range of stories, always aiming to make the best version of that title, regardless of genre. Variety and quality are the key to our continued success.”

Producer Todd Black said that the process of developing a project at Netflix had slowed down but otherwise business as usual. “They’re looking at everything, which I understand,” said Black, who last worked with Netflix when he produced “Ma Rainey’s Black Bottom” in 2020. “They’re trying to course correct. We have to be patient and let them do that. But they are open for business. They are buying things.”

In fact, the company still intends to spend about $17 billion on content this year. He paid $50 million last month for a thriller starring Emily Blunt and directed by David Yates (“Harry Potter and the Deathly Hallows”). And he plans to make a $200 million movie called “The Electric State” from directors Joe and Anthony Russo (“Avengers: Endgame” and “The Gray Man”) and starring Millie Bobby Brown and Chris Pratt after Universal Pictures oppose the price. label. 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 level of advertising, which it has told employees it wants to implement by the end of the year. Netflix’s foray into advertising generated excitement among media buyers at the industry’s annual conference in Cannes last week.

“It was pretty intense,” said Dave Morgan, CEO of Simulmedia, a company that works with advertisers, who attended the conference. “It was one of the two or three main topics that everyone was talking about.”

Hastings said Netflix would partner with an outside company to help jump-start its fledgling advertising business. The Wall Street Journal reported that Google and Comcast were the top candidates to be that partner. Still, advertising executives believe that building the business at Netflix could take time and that the company could only introduce the new level in a handful of international markets by the end of the year.

It could take even longer for advertising to become a significant source of revenue for the company.

“There are a lot of media companies going up against each other, and it’s going to take quite a while to compete with those companies,” Morgan said. “I imagine it will take three or four years to even be a top 10 video advertising company.”

In an analyst report this month, Wells Fargo poured cold water on the idea that subscriber growth for an ad-supported tier would be rapid. Wells Fargo analysts warned that the ad model would deliver “modest” financial gains over the next two years due to a natural cannibalization of the higher-paying subscriber base. They predicted that by the end of 2025, nearly a third of the subscriber base would pay for the cheapest ad-supported model, roughly 100 million users.

Bank of America went further last week. “Tiering could serve as a way for consumers of all income levels to expand their streaming budget by switching to subscribing to an additional service, benefiting Netflix’s competitors far more than Netflix itself,” he said. an analyst letter.

Netflix has also approached the studios it buys TV shows and movies from in recent weeks, seeking permission to show advertising on licensed content. In negotiations with Paramount Global, Netflix mentioned paying money on top of its existing license fee rather than reduce the company’s revenue from future ad sales, according to a person familiar with the matter who spoke on condition of anonymity to discuss the conversations at grade. .

This mirrors the approach Netflix took with studios when it introduced its “download for you” feature, which allowed users to save movies and TV shows to their devices for offline viewing. When Netflix added that feature, executives at the streaming service agreed to pay the studios a fee on top of their licensing agreement.

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 to Ted Sarandos and his entire team,” Greenfield said, referring to the company’s co-CEO. “They haven’t done a good enough job. However, they are still by far the leader.”

Benjamin Mullin contributed report.

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