The Netflix Crisis Is Bad, But Not That Bad

Reed Hastings
Photo By Justin Sullivan/Getty Images
Matthew Belloni
May 8, 2022

More Netflix employee cuts are coming, and soon. That’s the latest word from sources at the company, which has been quietly trimming staff for months, and officially laid off 25 marketing people last week. It’s all thanks to the subscriber slowdown and a full-blown market meltdown, of course. Losing two-thirds of your market capitalization will cause some serious re-examination of your celebrated “culture deck.” 

Amid all this, and given the level of chatter and schadenfreude around town, it’s important to note what is, and isn’t, happening. Yes, the planned spending growth has been halted. Pricey projects are getting a second look. (Unfortunately, the Mike Myers debacle The Pentaverate—the first episode of which consumed 31 minutes of time I will never get back—could not be stopped.) The pressure is definitely on TV chief Bela Bajaria and film head Scott Stuber to deliver more hits with those insane content budgets.

But those budgets are still there. Netflix is planning to spend $17 billion to $18 billion on TV and film content this year, well above rivals—and in most foreign territories, the spending will continue to grow. Chatting with people around Hollywood, you’d think Netflix is collapsing under the weight of a thousand Ryan Murphy deals. But those 220 million subscribers need not worry about that—for awhile, at least.  

Still, Netflix definitely has fundamental issues that it didn’t have six months ago. And it’s not just Wall Street’s apparent rejection of the total addressable market—the notion that 1 billion people will quickly sign themselves up to watch bakers making cakes that look like tacos. It’s also the internal issues: like the fact that the company was set up to disrupt and grow at the expense of pretty much everything else. Patty McCord, the H.R. executive who helped craft that vaunted culture deck, became a corporate celebrity; she’s still dining out on the speaker circuit. But now all those principles are being questioned externally, and in some cases internally.   

Specifically, Netflix is famously “flat,” merit-based and brutally honest, meaning it allows managers to hire and fire freely, go after “stars” and apply the “keeper test” to eliminate adequate performers, and pay people their “personal top of market” while avoiding contracts. It wasn’t uncommon for a $500,000-a-year creative executive at a traditional studio—even one under contract—to receive an offer of $900,000, $1 million, or more a year to defect to Netflix. Sure, it’s a cutthroat place (an overworked Netflix publicist once called me crying at 2 a.m.), and there’s no job security, but almost everyone is ridiculously overpaid.

Could those days be waning? Bloomberg reported that the company’s engineering group will introduce more traditional hiring practices, including levels of workers and set tiers of salaries. The Information later went further, saying that “bands” of pay tiers would be expanded to other parts of the company. Which makes sense, I guess: If Netflix doubled so many people’s salaries, reducing people to simply being somewhat ridiculously overpaid probably wouldn’t lead to an exodus. But even the prospect of salary cuts has caused people to freak out—nobody likes to be paid less to do the same job, especially when you’ve been told you are a “star” and when your job is all-consuming. Plus, the company philosophy is to fire you if you slip a little. “We are not a family,” Netflix always says.    

But Netflix insists no salary reductions are planned, which is interesting because the company won’t deny layoffs are coming. The strategy seems to be eliminating layers of employees, not the cost of each employee. Co-C.E.O. Reed Hastings apparently believes those reductions will maintain the tenets of the culture deck while keeping the Netflix margins at 20 percent, even with lower revenue from all those people he projected would become subscribers and have not yet materialized. He needs his people to continue to believe in the company, even if it’s getting beat up in the media and on the Street. A tough task. 

Netflix has endured crises before. During the Dotcom bust, in 2000, the company fired a third of its employees and scrapped its I.P.O. plan. And it’s certainly not alone in facing pressure: Half of Nasdaq stocks are down 50 percent from their 52-week highs, a quarter are down 75 percent. But the next couple months could be defining for Netflix, and especially for its culture and business philosophy. Netflix rode the tech wave and must now figure out how to function like an actual media company.