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Companies - May 18, 2022

Why Netflix is Laying Off 150 Staff as Users Face New Restrictions

Netflix has cut off almost 150 staff, mainly in the United States, as the company struggles with weak user growth and delayed subscriptions payment.

Approximately 70 part-time staff at Netflix’s animation studio would be forced to quit and roughly 26 contractors working on Netflix’s fan-focused Tudum website may be laid off. 

The decision was mostly based on business priorities rather than individual performance. 

Netflix earned $7.87 billion in the first quarter, falling shy of Wall Street expectations of $7.93 billion, causing a slow revenue growth for the company. 

Due to the ongoing conflict between Russia and Ukraine, the company expects to lose another $2 million in the coming quarter. Following Russia’s invasion of Ukraine, Netflix has ceased operations in the country.

A brief overlook on Netflix’s plummeting prices

In April, Netflix announced that they were experiencing a loss in subscribers for the first time in more than a decade. A reduction of just 200,000 users, or less than 0.1 percent of the company’s overall client base, was enough to send Wall Street into a panic, with shares falling more than 30%.

The company further predicts losing two million subscribers in the second quarter.

Netflix attributed the decline in subscribers to a number of causes, including a slowdown in internet and smart TV uptake, the lifting of pandemic restrictions, household password sharing, and greater competition from traditional cable and broadcast TV and other upcoming streaming services.

It also cited macroeconomic concerns such as rising prices and Russia’s invasion of Ukraine as reasons for Netflix’s decision to shut down its service in Russia, reversing the European region’s modest subscriber gain by 700,000 Russian accounts.

According to Bank of America analysts, Netflix “made it clear that we can expect very low subscriber growth in ’22 and ’23 with no margin expansion.”

The issue was less focused on Netflix’s major hits such as “Bridgerton” and “Ozark” and was more on battling the 100 million homes that watch Netflix for free due to the shared passwords.  

“When we were growing fast, it wasn’t the high priority to work on,” co-founder Reed Hastings admitted. “And now we’re working super hard on it.”

Chief operating officer Gregory Peters said Netflix wasn’t trying to shut down sharing, “but we’re going to ask you to pay a bit more to be able to share.”

How does Netflix want to curb this issue?

Netflix is planning to launch lower memberships with advertising in the coming years to attract more customers.

The firm, situated in Los Gatos, California, has long maintained its ad-free approach, which differentiates it from competitors like Disney+, HBO Max, and Apple.

Increasing pricing won’t help Netflix in the short run, even if it did so in January, making it the most costly of the big streaming services.

The fate of African Netflix

So far, Netflix hasn’t taken any action toward its African users despite the global revenue loss, but the austerity measure will certainly impact its African market as well.

However, Africa remains a hotspot for the streaming platform. As of 2021, Netflix estimated a reach of 2.6 million subscriptions in Africa, accounting for over half of all streaming on-demand subscribers. The number of subscribers is expected to quadruple to 5.8 million by 2026.

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