[Asia Economy Reporter Yujin Cho] Netflix, the largest online video streaming service (OTT) in the United States, is once again implementing workforce reductions following those in the first half of the year. Due to decreased demand and intensified competition, the OTT industry, facing management difficulties, is expanding its workforce restructuring.
According to major foreign media on the 14th (local time), Netflix sent layoff notification emails to 30 employees of its subsidiary animation studio. Previously, Netflix laid off about 450 employees in two rounds during May and June, bringing the total workforce reduction to approximately 480 employees so far.
The U.S. economic media Business Insider reported, "Netflix, which replaced the vice president of animation content and production earlier this year, appears to have carried out layoffs as part of organizational restructuring."
The background for this workforce reduction lies in subscriber churn and declining performance. Netflix experienced subscriber decreases for two consecutive quarters in the first and second quarters of this year. Netflix’s subscriber count dropped by 200,000 in the first quarter and by 970,000 in the second quarter. The main reason is the sharp decline in demand for streaming services as the COVID-19 pandemic special demand ended and the situation shifted to an endemic (periodic outbreak of infectious diseases).
Netflix’s operating profit in the second quarter was $1.578 billion (approximately 2.2 trillion KRW), down 14.6% from $1.848 billion in the same period last year. In a shareholder letter following the second-quarter earnings announcement, Netflix stated, "Last year, non-face-to-face consumption increased due to COVID-19, resulting in high growth, but this year, as we entered a low-growth phase, subscriber volatility increased."
During the COVID-19 pandemic, the streaming era blossomed, leading to a surge of OTT providers. Currently, there are nine OTT services launched in the U.S. market, including Netflix, Amazon Prime Video, Disney Plus, Apple TV, and HBO Max.
With the end of the COVID-19 special demand and excessive competition among OTT providers, restructuring aimed at securing competitiveness is expected to continue. Deadline analyzed, "Cost reduction has become a major concern for OTT providers. Workforce reduction is one way to achieve this."
On the 12th, Warner Bros. Discovery (WBD) cut 100 employees, and HBO Max, operated by WBD, announced a 14% reduction in staff. The 70 employees being cut at HBO Max are mostly concentrated in reality, casting, and acquisition departments. WBD was formed by the merger of Warner Bros. and Discovery and launched in April. Its first post-merger earnings fell short of market expectations ($11.8 billion), recording $9.8 billion in revenue.
To survive, OTT providers are rushing to strengthen competitiveness through mergers and acquisitions (M&A) among similar companies and launching new services. Netflix plans to soon launch a low-cost subscription service that includes advertisements. This service is expected to be initially released in about ten countries, including Korea.
The Wall Street Journal (WSJ) reported that Netflix and its advertising partner Microsoft (MS) executives recently met with advertisers to discuss this low-cost service scheduled to launch on November 1. According to WSJ, Netflix estimated in documents provided to advertising companies that the service’s net viewers will reach 4.4 million (1.1 million in the U.S.) by the end of this year and 40 million (13.3 million in the U.S.) by the third quarter of next year.
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