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How to interpret the new round of Netflix layoffs

Netflix co-CEO Ted Sarandos speaks at Cannes Lions
REUTERS/Eric Gaillard
Netflix co-CEO Ted Sarandos speaks at Cannes Lions.
  • Adario Strange
By Adario Strange

Media & entertainment reporter based in New York

Published Last updated

Like a well placed karate chop from Stranger Things Season 4 fan favorite Murray Bauman (played by actor Brett Gelman), Netflix is cutting a slew of jobs. The company is shedding an additional 300 staffers following the 150 workers it cut in May. This latest round of layoffs, first reported by Variety, will primarily impact the company’s US operations. 

News of the employee reduction came just hours after Netflix co-CEO Ted Sarandos confirmed new details regarding the company’s plans to begin rolling out advertiser-supported content to compete with a similar offering from Disney+ coming later this year.

“We’ve left a big customer segment off the table,” Sarandos said during an interview at the advertiser-focused Cannes Lions International Festival of Creativity on Thursday. “We are adding an ad tier, we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price, and I’ll watch ads.’”

Competition and economic tumult are driving Netflix to evolve with the market  

The new belt-tightening comes as Netflix attempts to slow a decline in subscribers reported in the first quarter of 2022 amid increased competition from rival streamers that used pandemic lockdowns to hone their business models. In addition to Disney+’s aggressive new ad-supported effort, Apple TV+ managed to win the first Best Picture Oscar produced by a streaming service for its film Coda, despite the long market lead and billions invested by Netflix in its film arm. 

Beyond market competition, like many premium subscription companies, Netflix now faces the additional challenge of record inflation, which is prompting consumers to re-evaluate how much money they devote to subscription spending. Adding a lower-cost, ad-supported tier to Netflix may ultimately allow Netflix to regain its subscriber growth trajectory while simultaneously adding a new revenue stream to its bottom line. 

Consumers are ready for ads in their streaming TV, movie theaters have already proven this  

Next to hybrid releases, ad-supported subscription TV is another way in which streaming services are invading the domain of traditional movie theaters. Advertisements shown to audiences in theaters (including pre-movie videos, lobby displays, and kiosks) have long been a source of revenue for theater chains. 

With pandemic lockdowns largely in the rearview mirror, in-cinema advertising revenue is projected to return to pre-pandemic levels, reaching roughly $450 million in the US according to a report from media intelligence firm Magna.

Now that streaming subscriptions have been normalized, the industry shift to ad-supported options is not only economically well-timed, but could lift all revenue boats by tapping into the marketing budgets that cinema outlets have long enjoyed. 

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