Netflix is seemingly in disarray, and Wall Street is looking to its third-quarter results for a sense of where the streaming giant is headed next.
It’s already been a busy few days for Netflix. On the heels of its biggest round of layoffs in four years, the company swapped out its chief creative officer, letting go of company veteran Bela Bajaria and naming Peter Rice to replace her. Earlier Monday, Netflix let go of film chief Dan Lin.
Continuing to dog Netflix are concerns over the engagement of its shows and movies, with few titles truly resonating with audiences and almost all of its biggest hits showing declining viewership season over season. All of these concerns, not to mention its ill-fated pursuit of Warner Bros., has led to 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 key questions they’ll need to address:
What’s going on with the staff shake up?
Netflix laid off 6% of its staff, or roughly 1,000 employees. And while the company maintained most of the jobs were on the product, tech and HR side — basically non creatives — they did include Bajaria’s exit, as well as a number of other key television and film executives.
Sarandos will have to explain to investors what this shake up means and lay out how the direction changes under Rice. The appointment of the veteran Disney and Fox executive signals a more critical eye towards quality film and shows, but how will that translate into better returns for the company?
Bajaria was also instrumental in setting Netflix’s global strategy, enabling it to grow in various markets. Will Rice be able to keep that momentum going?
And beyond Rice, who will he get to replace Lin? The next person will need to rebuild bridges in Hollywood and make Netflix the kind of place that high-profile creatives want to work at.
Also, will this be the last round of layoffs for the company?
How is Netflix addressing that pesky engagement problem?
The streaming giant’s struggles with engagement is the narrative that won’t go away, and has been a prime driver of its stock decline over the last few months.
It doesn’t help that Netflix has gotten less transparent over time, no longer providing subscriber data on a regular basis, and even reducing its biannual traffic data dump to once a year.
While the company has maintained it still has a clear path to growth, Wall Street is skeptical, and the recent job shakeup is evidence that Netflix isn’t so confident either.
Again, that’s where Rice — and whoever he brings in to build out the content team — comes in. They’ll be tasked with figuring out which projects to invest in and how to turn around fan enthusiasm for its biggest franchises while somehow snapping the sophomore slump. Netflix has had some critical darlings — “East of Eden” garnered 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 get its engagement moving in the right direction.
Then there’s the theatrical play…
What’s going on with the theatrical strategy?
Netflix has warmed up to theatrical, with awards play “La Bola Negra” out in theaters now and “The Further Mis-Adventures of Cliff Booth” getting the company’s Imax window at the end of November.
But the big bet will be on Greta Gerwig’s “Narnia: The Magician’s Nephew,” a massive bet on creating a theatrical blockbuster that could unlock a new revenue stream for Netflix. Or it could be a massive bomb that forces it to retreat from the theatrical world.
Sarandos will likely be asked about how Netflix is setting up the film for success given its massive budget — reportedly north of $250 million — and the fact that it hasn’t ever released a film this big on the theatrical stage.
How is it faring against YouTube?
Netflix has spent the year investing in creator content and podcasts — the kind of programming that has made YouTube a juggernaut. Aside from a few rare hits like Mark Rober — who plays well with families — it’s still unclear how any of this new content is faring on the platform.
Are they enough to get people to spend more time on Netflix? Or would people rather just watch them on YouTube?
Where does its live sports and events business go from here?
Netflix has increasingly upped its investment in live events like its weekly WWE RAW show and select NFL games, including one on the day before Thanksgiving and on Christmas Day. These are pricey acquisitions and eat into its overall content budget, and they were the brainchild of Bajaria who is now gone. Wall Street will once again be asking if they’re worth the investment, and where this all goes from here.
Netflix’s Sarandos has previously said these events help with engagement, subscriber growth and customer retention. But do they offer longer term loyalty that a steady stream of buzzy shows and movies can?
Events like “Skyscraper Live” are one-off affairs, while its share of NFL games is just a tiny slice relative to broadcast and even other streamers like Amazon.
What’s the state of the ad business?
One of Netflix’s key revenue growth drivers is its advertising business. The company expects ad revenue to double this year to $3 billion, and has a goal of hitting $8 billion in ad revenue by 2030.
But a key question is whether the ad tier is opening up the market and adding new customers or if it’s just cannibalizing its own premium tier subscribers — especially as prices keep increasing. The other is whether ad revenue grows fast enough to outweigh any anticipated slowdown in subscriber growth as Netflix reaches saturation in various markets.
What the heck is going with gaming?
Netflix’s exclusive window where it showed off the first gameplay footage of Grand Theft Auto VI was a coup for the streamer, nabbing 31.1 million views in its first day — more than anything else on the platform.
But it was also a reminder that Netflix’s own gaming ambitions have been mixed. While the streamer has launched games on the platform, mostly family or puzzle games, it continues to be a side project for the streaming giant.
With Netflix focusing back on the basics — quality shows and movies — what does that mean for its gaming ambitions?
The post Our 7 Burning Questions for Netflix’s Big Earnings Report appeared first on TheWrap.
