‘It’s time to be a real company,’ says media exec

Netflix (NFLX) has some work to do.

Earlier this week, the company confirmed to Yahoo Finance that it will be laying off about 150 positions of the streamer’s 11,000 workforce in an effort to reduce spending and offset slowing revenue growth.

“As we explained on earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said in a statement.

“These changes are primarily driven by business needs rather than individual performance, which makes them especially tough as none of us want to say goodbye to such great colleagues. We’re working hard to support them through this very difficult transition.”

The news comes after Netflix’s unexpected decline in Q1 subscribers, which led to a stock plummet of 35% and wiped more than $50 billion off its market cap.

Since then, the stock has struggled to rebound — down more than 68% year-to-date as investors question the longevity of the Netflix business model amid high inflation and increased competition.

For context, Netflix’s share price peaked above $690 (market cap of over $300 billion) in November 2021, before credit card data showed a slowdown in customer additions.

As the streamer looks to rebound, one media expert says Netflix needs to focus on a few key variables in order to “fine tune” its business and reestablish itself as a platform leader. Here’s what to watch.

‘Focus on cost’

“Because of the valuation of the company, Netflix has been able to do things like pay their employees multiple times what the traditional providers were offering,” Jon Christian, founding partner at OnPrem, a global technology firm that works with major entertainment networks to drive content performance, told Yahoo Finance.

“That’s why they were able to hire amazing people and take them away from the traditional media companies.”

“But we’re in a different time now — growth has slowed and now it’s time to be a real company,” the executive continued. He added that Netflix will have to adjust its payment structure in order to “focus on cost,” in addition to further strategizing how it acquires content.

Story continues

“[Netflix] has to be smart,” the executive said, explaining that the risk-reward model from years past is no longer relevant without the box office tie-in.

“You’re going to see a more sophisticated approach when it comes to how Netflix green lights titles, and how much it pays for titles,” he surmised, saying the focus will be on “quality of content.”

“I have always said content is king, and it’s true,” he reiterated. “Quality content is always going to win.”

‘With franchise comes fandom’

Coupled with a greater focus on cost, Christian said Netflix should also spruce up its library.

“100% they need to focus on franchises — with franchise comes fandom,” Christian stated.

He cited Amazon Prime Video’s (AMZN) upcoming “The Lord of the Rings: The Rings of Power” series (which the streamer coughed up a reported $465 million to produce), in addition to Disney+’s (DIS) powerful Marvel and Stars Wars franchises.

“It’s about rabid fans and [from there] you get to do consumer goods and NFTs and all sorts of things with that base. It’s another diversification strategy,” he continued.

As more franchise films receive the box office treatment, the executive noted that Netflix might start to reconsider its stance on theatrical and increase 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 could even pay your cost of some of these 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 alleviate monetary pressures, with “great potential to drive significant revenue,” according to Wedbush, which recently upgraded the stock from Neutral to Outperform.

The ad-based model, along with its other other subscription-based tiers “will allow [Netflix] to continue to grow and attract new customers and subscribers,” in addition to making the company “a ton of money” and increasing its user data.

“You’re going to see advertised-based subscriptions that are going to be at a much lower cost — across the board,” OnPrem’s Christian revealed.

Overall, Wall Street is no longer treating Netflix like the technology company it once touted itself to be.

“Now, it’s being valued similar to all of the traditional media providers,” Christian said.

“But hey, if you want to survive, you’re going to have to slip in some of the things that they are, too.”

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 or email her at [email protected]

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, YouTube, and reddit