Netflix (NFLX 1.74%) is mortal. The planet's leading premium-streaming service confirmed a round of layoffs on Tuesday, cutting loose roughly 150 positions in the process. Many of the jobs eliminated are part-time jobs at its animation studio and freelance gigs at its social media and publishing group.
No company grows in a straight, upward-moving trajectory, but you don't often hear about a company rightsizing its workforce until it stumbles. Netflix has certainly taken a spill. It just experienced its first sequential decline in subscribers in more than a decade, and the stock is trading 73% below last year's highs. Let's go over the good, the bad, and the ugly behind this latest development.
Image source: Getty Images.
The good
It might be bad form to point out the silver lining of cutting jobs, and it's not as if Netflix will be saving a lot of money by eliminating what is just a little more than 1% of its global workforce. However, there is art in desperation. It's a confirmation that Netflix is ready to shake things up, and right now, that's exactly what the platform needs.
Netflix is exploring a lot of new things these days:
- It's been buying indie game developers in a push to include a gaming component in its streaming offering.
- Reports over the weekend had Netflix talking to movie theaters about giving them a 45-day window of exclusivity on upcoming platform releases in order to have wide theatrical distribution before films like the upcoming Knives Out 2 hit the service.
- Netflix is exploring livestreams, an option that would allow it to have real-time stand-up specials as well as interactive talent and reality-show competitions in its arsenal.
- A new ad-supported tier will be coming out soon, giving viewers a lower-priced option to access Netflix programming.
They don't all have to work. In fact, you don't want them all to work. A cocky and complacent Netflix is how we got to this point where it was the only major premium streaming service to lose subscribers through the first three months of this year. Layoffs are another admission that Netflix made a mistake, and realizing that there is a problem is the first step in fixing the situation.
The bad
Layoffs are naturally a bad look. Mainstream consumers who might not dive into the minutiae of the staff downsizing might assume that Netflix is losing money or going out of business. They don't get that these are largely some of the lower-paying positions at Netflix, and it's not really about money or the need to preserve capital.
Folks might not realize that Netflix is still going to spend $18 billion on content this year. It's still going to deliver a healthy profit. Simply absorbing the headlines about the layoffs could lead subscribers to assume the worst. The company already expected to go from losing 200,000 net subscribers in the first quarter to 2 million net defections for the current quarter. The negativity could spur more people to cut the service loose.
The ugly
If subscribers are feeling antsy, naturally it's going to be worse for those on the inside. Morale takes a hit when you know a company is scaling back its workforce. You start to read too much into subtle corporate moves. You dread clicking company emails, fearing that an all-hands meeting is about to take place.
This is generally a rough time to be working at a consumer tech company that leans on stock options as an incentive. The stock has been pummeled since peaking in November. The belt tightening will weigh on sentiment, Glassdoor ratings, and perhaps even productivity at the leading (and now bleeding) streaming-services stock. Until some of the new initiatives start to pay off, it will be a challenging time for Netflix and its shareholders.
A lot is happening, and it fittingly is taking place in the same month that the new season of Stranger Things will roll out. Stranger things, indeed.
