Netflix Is Still Spending Big, But For How Long And On What?

It is a secret to probably nobody with an internet connection that Netflix has not had a particularly good year. The company's stock has absolutely plummeted from its high of highs to a several-year low, with the streaming service losing somewhere in the neighborhood of 70% of its value during 2022, including something like $54 billion overnight in April. This all stems from stronger competition in the streaming wars and a report of subscriber losses in the first quarter of the year, with a further loss of 2 million subscribers expected to be lost in the second quarter. It's all bad and the company seems to have few good solutions. Yet, it has been made quite clear that Netflix still plans to spend lots and lots of money over the next couple of years.

In a recent report from Variety, it was revealed that Netflix has launched a "charm offensive" with co-CEO Ted Sarandos, head of global film Scott Stuber and head of global television Bela Bajaria speaking with top creators and agents, stating that they still plan to spend "aggressively" not only to make but to market movies and shows. Also of note, the company's content budgets for this year and 2023 are said to be locked in place, with a $17 billion spend expected in 2022, matching last year's gigantic content cash dump.

Yes, Netflix has 222 million subscribers worldwide and yes, that is still by far the biggest number for any streaming service in the game. But the key is growth and it seems they've hit a wall, with Wall Street no longer seeing a big, bright future for the streaming giant. So, what is Netflix going to do with these billions and billions of dollars over the next couple of years and, perhaps the bigger question is, how long can they possibly keep this up with the stock price dropping so sharply?

Money for content, less for jobs

One thing we know for sure is that Netflix has been cutting jobs left and right. To go along with 150 employees that were let go in May, another 300 people were recently let go within the company, largely in North America, per The Hollywood Reporter. Roughly speaking, that equated to about 5% of the company's overall workforce. That is, to say the very least of it, no small thing. Another intriguing thing that has been somewhat overlooked is a note on the official Netflix jobs site. Under the "Valued Behaviors" section those who are going to be employed with the company are expected to exercise good judgment and "spend our members' money wisely." But what does that mean, exactly?

One thing we know for sure is that Netflix's animation department was cut heavily in these layoffs. This suggests that the big investments that have been made in original animation in recent years may well be scaled back. So it seems we can perhaps expect less spending on animated content. Another huge impact of the layoffs was Tudum, Netflix's in-house website that was meant to create content for and market its biggest originals. This program lasted mere months before being axed as a result of the financial downturn. Clearly, the idea isn't going to be to spend money on creative marketing in this way. Is the idea to free up as much capital as possible for movies and TV shows while being more discerning about how that money is spent?

There are harsh realities associated with business and yes, employee cuts were always going to be a part of the equation when a stock drop that dramatic hits. This is not limited to Netflix or streaming. But it's somewhat clear the brass is willing to cut back on employees while not wanting to have the image be that they are cutting back on spending.

Different revenue streams

After all, a big part of Netflix's strategy in recent years has been to attract big talent with big money. Just look at "Red Notice," a $200 million movie that was picked up by the streamer from Universal Pictures that became its most-watched movie ever. That sort of thing doesn't come cheap and, for whatever it may be worth, critics really didn't dig what The Rock and Co. had to sell. Despite that, we are getting sequels. Big money, big talent. But even that is poised to change as a result of business realities. 

Netflix was, at one point, the great box office disruptor, releasing big movies directly to streaming. During the pandemic, Hollywood doubled down hard on streaming as theaters were shut down all over the world. However, the combination of a nice box office recovery this year coupled with Netflix's downturn has gave way to a change in thinking. It seems other studios are not going to be as eager to abandon theatrical distribution so quickly as that revenue is helpful and, in turn, big theatrical hits like "The Batman" stand a better chance at becoming hits on streaming as well.

To that end, rumors have been circulating that Netflix is going to experiment more with theatrical releases. "Knives Out 2" is reportedly going to get one and, if that goes well, who knows? Box office revenue could help offset the cost of giant films for the company and make them more feasible, while also building up good will with theater owners. Not to mention that theaters have already made it clear they would welcome Netflix with open arms. And let us not forget that Netflix is experimenting more with video games too. If subscribers are drying up, expansion into other areas of media is clearly the play. 

The deep pockets can't last forever

Here is what we know for sure: Netflix won't (or perhaps can't) spend less on content in the near-term. However, with things going the way they are, they also can't outspend Hollywood indefinitely. Disney+, Hulu, Amazon Prime Video, Apple TV+, Paramount+, HBO Max, Peacock, and many others are out there vying for subscribers as well. It's a crowded marketplace and, quite frankly, as this house of cards currently exists, something has to give. Netflix is the king of the hill but only for now. Eventually, one of these services is going to fail or there are going to be more high-profile media mergers. Things are going to get uglier before they get better – make no mistake.

So where does that leave us? It seems clear that less money will be poured into staff at Netflix for now and ideas such as Tudum are off the table. Meanwhile, animation is being curbed and the age of giving a guy like Martin Scorsese nearly $200 million for "The Irishman" in the hopes of winning an Oscar are over. The whole "spend our members' money wisely" thing almost feels like it was, perhaps indirectly, aimed at decisions such as that. For now, it seems the purse is just as full as it ever was and Netflix wants that message out to A-listers in Hollywood but, at the same time, those purse strings feel like they are tightening.

The company got ahead at one point by handing out rich deals to the likes of Ryan Murphy, Shonda Rhimes, and "Game of Thrones" duo David Benioff and D.B. Weiss. One expects those rich deals are a thing of the past too. Because, no matter what the brass is trying to signal, when a company loses 70% of its value, things can't continue as they were. $17 billion per year on movies and TV that rely on subscriber dollars and growth is no longer sustainable. Things undoubtedly will change because they have to. The future is calling, Mr. Sarandos, and it is a future where Netflix is not alone at the top.