Netflix (NFLX) has a lot to do.
Earlier this week, the company confirmed to Yahoo Finance that it will lay off about 150 jobs of the streamer’s 11,000 employees to reduce spending and offset slowing revenue growth.
“As we explained on earnings, our slowing revenue growth means we also need to slow our expense growth as a company. Unfortunately, today we are laying off around 150 employees, mostly in the US,” a Netflix spokesman said in a statement.
“These changes are driven primarily by business needs rather than individual performance, making them particularly challenging as none of us want to say goodbye to such great colleagues. We are working hard to support them through this very difficult transition.”
The news comes after Netflix’s unexpected drop in subscribers in the first quarter caused its stock to plunge 35% and wiped more than $50 billion from its market cap.
Since then, the stock has struggled to recover — down more than 68% year-to-date as investors question the longevity of Netflix’s business model amid high inflation and increasing competition.
For comparison, Netflix’s stock price peaked at over $690 (over $300 billion market cap) in November 2021 before credit card data showed a slowdown in subscriber access.
As the streamer looks to bounce back, one media expert says Netflix needs to focus on a few key variables to “fine-tune” its business and re-establish itself as a leading platform provider. Here’s what to see.
“Focus on costs”
“Because of the company’s valuation, Netflix has been able to pay its employees many times more than traditional providers,” Jon Christian, founding partner at OnPrem, a global technology company that works with major entertainment networks for content performance, told Yahoo Finance.
“That’s why they were able to hire great people and take them away from traditional media outlets.”
“But we’re in a different time now – growth has slowed and now is the time to be a real company,” the executive continued. He added that Netflix needs to adjust its payment structure to “focus on costs” in addition to its broader content acquisition strategy.
Now it’s time to be a real company…Jon Christian, founding partner at OnPrem
“[Netflix] must be smart,” said the manager, explaining that the risk-reward model of previous years is no longer relevant without box office recording.
“You’re going to see a more sophisticated approach to how Netflix greenlights titles and how much it pays for titles,” he surmised, saying the focus will be on “the quality of the content.”
“I’ve always said content is king, and it’s true,” he reiterated. “Quality content will always win.”
“With the franchise comes the fandom”
Coupled with a stronger focus on costs, Christian should also revamp its library, according to Christian.
“You have to be 100% franchise-centric – with franchises comes fandom,” Christian explained.
He cited Amazon Prime Video (AMZN)’s upcoming series The Lord of the Rings: The Rings of Power (which the streamer reportedly spent $465 million to produce), in addition to the powerful Marvel and Star Wars Disney+ (DIS) franchises.
“It’s about rabid fans and [from there] You can make consumables and NFTs and all sorts of things with that base. It’s another diversification strategy,” he continued.
As more franchise films get treated at the box office, the executive noted that Netflix could begin to rethink its stance on cinema and expand its partnerships with theater chains to showcase content.
Theatrical “gives you a window where you can make a lot of money on top of your subscriptions — that might even cover your costs on some of those franchise tentpole titles,” he noted.
The power of ad-based subscriptions
Netflix’s upcoming ad-supported offering, in addition to its crackdown on password sharing, should also help ease financial pressures, with “great potential to generate significant revenue,” according to Wedbush, which recently upgraded the stock to outperform from neutral .
The advertising-based model, along with its other subscription-based tiers, will “enable [Netflix] to keep growing and attracting new customers and subscribers”, in addition to the company making “a lot of money” and increasing its user data.
“You’re going to see ad-based subscriptions that are going to be a lot cheaper — across the board,” revealed OnPrem’s Christian.
Quality content will win…Jon Christian, founding partner of OnPrem
Overall, Wall Street no longer treats Netflix like the tech company it once made out to be.
“Now it is valued similarly to all traditional media providers,” said Christian.
“But hey, if you’re going to survive, you’ve got to slip into some of the things they are, too.”
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