Netflix to cut spending by $300M
By Felicia Nwosu
Netflix has revealed that it will be reducing its cost of spending by $300 million in 2023, due to the delay caused by the rolling out of its crackdown on free password sharing from the first quarter to second quarter of the year.
Due to the implications of the delay on its financial status, Netflix has cautioned its staff to remain frugal with their spending, but has also stated that there will not be a hiring freeze or additional layoffs. However, it’s worth noting that the $300 million cut represents only a small fraction of the company’s overall expenses, which were around $26 billion last year.
Although it was able to remain ahead of the curve financially in the first quarter of the year in accordance with its projections, despite this, Netflix reported a lighter-than-expected forecast last month. This was as a result that the company has raised its estimate for the amount of free cash flow it aims to generate in 2023 to at least $3.5 billion, up from $3 billion.
According to a report by Wall Street Journal, the planned cost reduction, which is relatively small in its context of $26 billion in operating expenses last year, will not entail further layoffs or a hiring freeze, It also reported that, last year, Netflix which has about 11,000 employees worldwide, laid off nearly 500 employees between May and September, and exited some real estate leases to reduce its office expenses.
Recall that Netflix began what it calls its “paid sharing” programme which requires account holders to start paying extra to share their accounts or free password users to start their own accounts in Latin America last year and started to roll it out in Canada, New Zealand and Portugal, as well as Spain, in February.
Netflix added just 1.75 million new global subscribers in Q1, instead of the 2.4 million expected by analysts. It lost 400,000 subscribers in Latin America, and added only 100,000 in North America, after losing nearly 1 million in its biggest market last year. But it added 1.46 million subscribers in Asia-Pacific in the quarter, after lowering its prices in India and some other countries in the region.
Now focused on growing revenue and profitability rather than user numbers, Netflix saw revenue rise 4% in Q1, although operating margin was 21% compared to 25% a year ago.
The company is projecting accelerated membership growth, as well as revenue, by this year’s second half, driven by the paid sharing and the launch of its ad-supported tier.
Meanwhile, the postponement of the paid sharing rollout in the U.S. and the rest of the world in its Q1 earnings release in mid-April was indicated by the company, suggesting that it wanted time to incorporate learnings from the existing markets to further improve the experience for members and the results.
Netflix lost 1 million users in Spain in little over a month after discontinuing free password sharing there in early February, according to a Kantar study based on surveys of household streaming habits.
However, the company said it is “pleased” with the results of the program thus far, and is confident that the inevitable subscriber churn after paid sharing is implemented will be temporary, until formerly free users establish their own accounts.
“We see a cancel reaction in each market when we announce the news,” Netflix stated. “In Canada, which we believe is a reliable predictor for the U.S., our paid membership base is now larger than prior to the launch of paid sharing and revenue growth has accelerated and is now growing faster than in the U.S,” Netflix said.
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