Netflix’s slowdown in U.S. viewing and advertising sales helped trigger a sweeping change at the top of its content operation, co-CEOs Ted Sarandos and Greg Peters acknowledged during a Tuesday discussion with Wall Street analysts following the company’s third-quarter earnings release.
The overhaul included the departures of chief content officer Bela Bajaria and film chief Dan Lin. Former Fox and Disney executive Peter Rice was appointed on Oct. 15 to succeed Bajaria and is set to begin next week.
While addressing the shake-up, Netflix’s leadership sought to balance the weakness in its U.S. business with stronger indicators elsewhere. Peters said the company’s underlying fundamentals remain solid, pointing in particular to subscriber retention after a recent price increase.
For the quarter that ended Sept. 30, churn improved both globally and in the United States. According to Peters, that performance was better than Netflix had expected, especially in light of the price hike.
“The quality, quantity and variety of viewing remains healthy and it drives our business model,” Peters said. “And the best evidence that we’ve got that we’re delivering that value is churn. We’ve got healthy retention in every region.”
Peters also described subscribers’ response to Netflix’s latest pricing moves, including the increase in the U.S., as consistent with the company’s previous changes.
“The ultimate determinant of are we delivering that value is the reaction to price changes,” he said. “And those recent price changes that we did, including in the United States, have gone well.”
International Viewing Offers a Brighter Picture
The U.S. slowdown was not reflected across most of Netflix’s other markets. Peters said viewing and engagement remained strong in the majority of regions outside the country, with locally produced titles helping both audience activity and business growth.
India emerged as a standout during the quarter. Following what Peters characterized as a strong slate, total viewing hours in the country increased 24% in the third quarter. Viewing also rose on a per-member basis, a result he said contributes to membership growth.
Sarandos pointed to India as an example of the impact Netflix can achieve when its content connects strongly with viewers. He said similar success was occurring in Korea and Japan, while the company’s slate was also performing well in the Nordics, which he described as a mature market for Netflix.
The next challenge is turning more promising projects into titles with global reach. Sarandos said Netflix had delivered “some really solid doubles and triples” during the year, but other territories also depend on certain titles becoming “home runs” capable of traveling around the world.
“We’re focusing on that execution,” Sarandos told analysts, adding that the right creative choices and concentration can generate an outsized effect on Netflix’s global business.
Netflix Makes Its Case for Peter Rice
Rice will enter the company as it sharpens that focus on developing more standout programming. Sarandos said the incoming executive “brings expertise in both art and commerce, television and film,” calling that combination the precise skill set Netflix needs for its next chapter.
Chief financial officer Spencer Neumann also acknowledged the importance of large, attention-grabbing successes. However, he argued that Netflix’s business is not reliant on a single show, genre, format or region.
Neumann said the company continues to provide members with a mix of quality, quantity and variety even while delivering only modest growth in viewing hours. He cited a steady flow of major hits in most regions as evidence of the stability of Netflix’s growth model.
“We’re not overly dependent on any kind of one title, nor outsized performance by any one region to deliver healthy growth,” Neumann said.
ShowBiz Take
The leadership reset shows that healthy subscriber retention alone has not removed the pressure on Netflix’s content team. U.S. viewing and advertising sales slowed, and the company responded by changing the executives responsible for its programming operation.
At the same time, Netflix’s executives are emphasizing that the picture is not uniformly weak. Improved churn, the response to higher prices and stronger engagement in markets including India provide the company with positive evidence as it enters its next phase under Rice.
The strategic message is clear: Netflix wants more titles that can become major local successes and then travel internationally, without abandoning the broad mix of programming and regional performance that executives say protects the business from depending too heavily on any single hit.
What Happens Next?
Rice is scheduled to begin next week as Bajaria’s successor. His immediate task will be tied to the priority Sarandos outlined for analysts: nurturing more shows into distinctive hits with the potential to deliver significant results both in their home markets and around the world.