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Tuesday, October 4, 2022
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Netflix Lays Off Additional 3% of Workforce

Business

Feet up watching Netflix on television. | Image by Vantage DS, Shutterstock

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A new round of layoffs at Netflix will impact 300 global employees as the company looks to rein in ballooning costs. This is Netflix’s second round of layoffs due to slowing revenue growth.

The streaming service laid off 150 employees and many part-time workers and contractors back in May.

Since the beginning of the year, Netflix has faced several challenges, including a roughly 70% fall in share price from disappointing earnings, higher borrowing costs due to rising interest rates, and diminishing subscribers thanks to a saturated streaming market.

Thanks to higher interest rates, Netflix has been forced to think twice about borrowing money for potential acquisitions, expansion plans, or other significant investments. Jim Vogel, manager of FHN Financial interest rate strategies group, said companies with disappointing earnings have a more challenging time borrowing.

“There may be new opportunities out there, but the cost of financing those big, major opportunities has gotten much higher,” said Vogel. “And companies are eventually going to have to face those higher borrowing costs when their existing bonds mature.”

After a decade of leading the streaming wars, Netflix has finally fallen from its first-mover advantage amid the onslaught of new and revamped competitors, including Disney+, Hulu, HBO Max, Paramount+, and Peacock. Netflix in April reported its first quarterly loss of subscribers in more than a decade and said it expected to lose 2 million global subscribers in the current quarter.

“While we continue to invest significantly in the business, we made these adjustments so that our costs are growing in line with our slower revenue growth,” a Netflix press release stated. Speaking of the 3% of its workforce it is laying off, the press release added, “We are so grateful for everything they have done for Netflix and are working hard to support them through this difficult transition.”

During Netflix’s recent earnings call, CFO Spencer Neumann said the company was slowing cost growth to maintain margins due to the slower revenue growth.

Co-chief executive Ted Sarandos said Thursday that Netflix is in talks with multiple potential partners to help it create an advertising-supported tier of service, a move that would bring in a fresh line of revenue beyond subscription fees. Sarandos said the company may start by partnering with an established advertising company but would eventually build its own internal tools.

Along with cost-cutting, Netflix is looking at more ways of generating revenue. These include ad-supported plans and extra fees for those who share their accounts with people living in other households. The company is scheduled to report second-quarter earnings on July 19.         

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