Netflix is in the storytelling business, but it seems to have lost the plot on perhaps the most interesting story it needs to be telling: Its own.
That may be at the heart of the stunning shake up at the company over the last week, which saw content chief Bela Bejaria, film head Dan Lin and 1,000 or so other employees let go in a plan to refocus the company’s content under new hire Peter Rice.
To understand what’s going on requires you to understand Netflix’s unique (at least for the media business) ability to tell its story to Wall Street, and to do so in a way that valued the company as though it were a tech titan like Google or Apple. Netflix was once part of the legendary group of FAANG stocks that drove stock market growth for years.
Once it began its pursuit of Warner Bros. last year, however, Wall Street got spooked. All of sudden Netflix is being valued more like a traditional media company, rather than a high-flying tech company.
All of a sudden, a company that was so good at selling its story, through subscriber numbers, through selective drops of viewership data, through its consistent and growing revenues and profits, created its own plot twist. The WB deal sent a message to Wall Street (a prescient one, it turns out, given the last week’s news) that something may have been amiss with its content.
Why else would Netflix so fully be willing to embrace theatrical movies or be willing to take on linear assets like HBO or TCM?
And Netflix embarked on a series of bets that appear to have not paid off, not paid off as much as expected, or that are still in the development phase. Some of those bets are sure to stick around (the advertising tier, live events) but others are less certain (podcasts, gaming, creator deals, Netflix House experiences).
On the company’s latest earnings call, co-CEOs Ted Sarandos and Greg Peters insisted that their strategy wasn’t changing, but it doesn’t take much reading between the lines to see that even if the topline strategy is the same (“We want to be the must-have entertainment service, the first one members check for a great series or a great film, and the last service they would ever cancel”), there are changes being made at the margins.
That means doubling down in some areas, like high-quality originals built for the U.S. domestic market, “where we can have an outsized impact when we create a big buzzy show that members love and talk about all over the world,” Sarandos said.
And it will mean more sports and live events, which Sarandos noted really “break through.”
“They stand out, they drive new membership, they add fuel to our ad revenues, they please our existing members, and they just generally enhance the value of Netflix,” he added.
Rice’s job, meanwhile, is to help turbocharge that, with a particular emphasis on getting in business with the best creatives:
“Peter Rice understands talent relations, and in a competitive market, creative talent have choices of where they want to work, and we want Netflix to always be the place that they love to do the best work of their life,” Sarandos said. “Peter is the exact right person to lead those efforts in the U.S. and around the world. That’s a key aspect of what I believe Peter can improve on looking forward.”
Sorry Dan Lin.
But it also means even more growth bets, including ingestion of local broadcasters (as Netflix is testing with TF1 in France) and what sounds like imminent deals to become a wholesale dealer of streaming services from other companies, which Greg Peters told analysts “would be yet another way to expand our entertainment offering. We think that the same core benefits to the partner, incremental reach, incremental monetization, would apply in that model as well.”
In other words, don’t be surprised if Peacock, Fox One or other services are available soon as an add-on within Netflix, and sooner rather than later, mirroring what has been a successful strategy from the likes of Roku, Prime Video and YouTube.
And yes it will mean lots of talk of AI to help reduce costs and make more content faster.
But it’s all in service of a story.
Netflix, unlike most other media companies, strongly incentivizes its employees to take big chunks of their compensation in stock. If the company does well, the employees do well. When the shares were rising year after year, employees were happy. Now, they are anxious.
Netflix doesn’t want to be valued like a media company, it wants to be a FAANG once more. It spent years persuading Wall Street of its narrative, and it is trying to get back on track.
Peter Rice, in other words, isn’t just trying to reprogram Netflix’s storytelling on the screen, he is a part of reprogramming its corporate story too. But it won’t be an easy story to sell.