Netflix says it’s business as usual. Is this good enough?

While being honored 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 a loss of 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, looking at it, the business works,” Ms. Bajaria said from the stage. “We are not making any radical changes in our business. We are not joining. We don’t have a big transition phase.”

Two weeks later, after Netflix had laid off another 300 people, Reed Hastings, the company’s co-chief executive, doubled down on Ms. Bajaria’s message, assuring the remaining employees that the future was indeed bright and that in the future 18 months the company would employ 1500 people.

To which some in the entertainment industry responded: Is that so?

For years, Netflix has been the leading innovator in Hollywood, leading a revolution in the way people around the world watch movies and television. Now, faced with losing subscribers 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 members, as well as a lower presentation – priced advertising layer. There is some concern in Hollywood and on Wall Street that these moves are not enough.

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

Netflix stunned the entertainment industry in April when it announced it would start showing ads on its platform. If that sacred principle was being eroded – Mr Hastings had long vowed that Netflix would never deign to run ads – what could happen next? Would there be a serious push in cinemas? Perhaps a change in the cadence of how shows debut, from the Netflix model invented on a whim to a weekly release schedule to build buzz and word-of-mouth anticipation? Would Netflix take a very different approach to programming?

However, in the two months since the ad was announced, Netflix has signaled that no other major changes will occur. Shows continue to be released immediately, with a few exceptions — episodes for the final seasons of “Ozark” and “Stranger Things” were made available in two batches this year, separated by more than a month.

Ms. Bajaria has told talent representatives that the company is more or less sticking to the programming strategy she put in place 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 asking for scripts before ordering a new series. And although Netflix has laid off roughly 450 full-time employees over the past six weeks, none were high-ranking program executives, further evidence that the company remains committed to its top decision makers.

Netflix reached more than 221 million subscribers worldwide by taking chances: fueling ambitious content, paying for shows it believed featured big names or not, giving big leeway to big-name directors like Spike Lee and Martin Scorsese. Its recent stance on staying the course has raised some concerns that the company known for its entrepreneurial thinking is moving away from that strategy when leaning toward it would serve it better.

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 the competition increased greatly, it spent 2.5 billion dollars.

Most shows on Netflix still appear on the service with relatively little outside promotion. And the broadcaster’s films still only get nominal theatrical releases. For example, “The Gray Man,” an expensive summer blockbuster 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 talks between Netflix and the exhibitors, there are no active negotiations regarding other possible exclusive theatrical releases. The long-awaited sequel to Knives Out, slated for release this year, will hit Netflix after its debut at the Toronto International Film Festival. An exclusive wide theatrical launch seems unlikely. Netflix declined to comment on its theatrical strategy.

But company executives have become much more sensitive to bad reviews, which have been popping up with high frequency lately as Netflix tries to find a new hit on par with “Stranger Things” or “The Crown.” (Newer content like the movie Spiderhead and the series God’s Favorite Idiot have been critically panned.) One producer who works with Netflix said the word “quality” was being thrown around a lot more often in development meetings.

Emily Feingold, a Netflix spokeswoman, disputed the idea that focusing on the quality of a show was somehow a shift in strategy, citing such diverse content as “Squid Game,” reality TV show “Too Hot to Handle” and movies like “Red Notice” and “Project Adam”.

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

Producer Todd Black said the process for developing a project at Netflix had slowed down, but otherwise it was business as usual.

“They’re looking at everything, which I understand,” said Mr. Black, who last worked with Netflix when he produced Ma Rainey’s Black Bottom in 2020. “They’re trying to make amends. We have to be patient and let them do that. But they’re open to business. They’re buying things.”

Indeed, the company still aims to spend about $17 billion on content this year. It paid $50 million last month for “Pain Hustlers,” a thriller starring Emily Blunt and directed by David Yates (“Harry Potter and the Deathly Hallows”). And he 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 declined the award. label. The company also just announced a development deal for a TV adaptation of “East of Eden” starring Florence Pugh.

On Tuesday, Whip Media, a research firm, said Netflix had dropped 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 to Netflix is ​​its level of advertising, which it has told employees it wants to phase out by the end of the year. Netflix’s foray into advertising sparked excitement among media buyers at the industry’s annual conference in Cannes last week.

“It was pretty intense,” said Dave Morgan, who is chief executive of Simulmedia, a company that works with advertisers and attended the conference. “It was one of the top two or three issues that everyone was talking about.”

Mr. Hastings said Netflix would work with an outside company to help launch its fledgling advertising business. The Wall Street Journal reported that Google and Comcast were the frontrunners to be that partner. However, advertising executives believe that building the business at Netflix may take time and that the company may only be able to introduce the new tier in a handful of international markets by the end of the year.

It may take even longer for advertising to become a significant revenue stream for the company.

“You have a lot of media companies putting it out there, and it’s going to take a long time to compete with those companies,” Mr. Morgan. “I can imagine it will take three or four years to be a top 10 video advertising company.”

In an analyst report this month, Wells Fargo threw cold water on the notion that subscriber growth to an ad-supported level would be rapid. Wells Fargo analysts warned that the ad model would provide “modest” financial benefits in the next two years due to natural cannibalization from its higher-paying subscriber base. They predicted that by the end of 2025 nearly a third of the subscriber base would be paying for the cheaper ad-supported model, roughly 100 million users.

Bank of America went further last week. “Ad tiering can serve as a way for consumers in all income brackets to stretch their streaming budget by trading down to subscribe to an additional service, benefiting Netflix’s competitors far more than itself.” Netflix,” said an analyst note.

Netflix has also reached out to the studios it buys TV shows and movies from in recent weeks, asking for permission to run ads on licensed content. In negotiations with Paramount Global, Netflix has mentioned paying money on top of the existing licensing fee rather than giving the company a cut of revenue from future ad sales, said a person familiar with the matter, who spoke on condition of anonymity to discuss the matter. active talks.

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

In the end, however, Netflix’s success will most likely come down to how well it spends its $17 billion content budget.

“Netflix, dollar for dollar, has to do better, and that falls on Ted Sarandos and his entire team,” Mr. Greenfield said, referring to the company’s co-chief executive. “They haven’t done a good enough job. However, they are still, by far, the leader.”

Benjamin Mullin contributed to the reporting.

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