For years, Netflix reigned over its competition as the undisputed king of streaming. The feeling of triumph extended to employees across the board, who benefited from massive spending budgets and envious compensation packages buoyed by high salaries and lucrative stock options.
But on April 19, when Netflix reported that it lost 200,000 subscribers in its latest quarter, employees were confronted with reality. “When you are flying high for so long — an industry leader — of course it hurts to be taken down a peg,” one Netflix staffer says.
During a prerecorded earnings interview, Netflix CFO Spencer Neumann said the streamer will start “pulling back” on some of the company’s spending in the next few years, while co-CEO Reed Hastings was forced to concede that Netflix will have to turn to advertising and will launch an ad-supported subscription tier in the near future. An employee town hall that followed the earnings report maintained the somber tone, with Hastings even admitting at the top of the call that the results were a “bitch,” according to a person familiar with the call.
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Three individuals in different divisions at Netflix tell The Hollywood Reporter that there has been a noticeable slowdown in recent hiring as teams have had to fight harder to advocate for new hires. (The streamer still has many open listings on its job posting site, however.) “I’ve been told the budget for personnel on my team has to remain flat,” another Netflix insider says. “I don’t know if [top management] actually uses the word ‘hiring freeze.’ I mean, we use it, and we know it’s true. I know other managers have been told the same.”
Sources inside the company also expect layoffs as Netflix continues to outsource some positions — particularly those outside of the U.S. — to third parties to save money. “We underwent a recent round of restructuring and layoffs, and the party line was it was to be more globally focused,” a third Netflix source describes. “We thought that was the end of it [layoffs], and now I’m being told, ‘No, it’s definitely not the end of it.’”
Aside from turmoil around the allocation of resources, Netflix’s sharp stock price slide is also causing anxiety among some employees. As of April 27, the stock has fallen roughly 50 percent since March and has dipped below $200 — a price not seen since 2017.
Netflix has an unusual employee stock option program (the company itself calls the perquisite “unique” in its benefit guide) that lets employees choose how much of their compensation they receive in cash and how much they want to receive in Netflix stock options. “You can choose all cash, all options, or whatever combination suits you,” the guide says. “You choose how much risk and upside (down) you want.”
Netflix employees are allowed to choose their option allocations once a year in December and cannot change their allocations until the following year. The benefit is even visible at the CEO level, with co-CEO Reed Hastings opting to receive a $650,000 salary, with another $33 million or so in stock options, and his co-CEO Ted Sarandos taking a $20 million cash salary and the remainder of his pay in options.
When Netflix’s share price was rising, as it did for most of the past decade, employees who took a heavier percentage of their pay in stock reaped the rewards, but the steep decline this year has some staff feeling the heat. During the town hall shortly after Netflix unveiled earnings on April 19, some employees had requested that Netflix allow staff to choose their allocations more frequently — such as twice a year — to help stave off some of the losses. But, sources say, the request was denied due to its tax implications under section 409A of the Internal Revenue Code, which determines the fair market value of the company’s common stock and governs, in part, how stock options given to employees are taxed.
“Everyone is definitely sweating over the options they took when the stock was at its peak,” a second employee said, adding that they think people will shift more of their compensation to cash going forward.
The public embarrassment and internal turmoil has led to what the first employee describes as a “perfect storm”: “Are we losing prestige? And [we’re] losing subscribers, and [we’re] raising prices on top of it?” the employee said, referring to Netflix’s recent subscription price hike and poor showing at this year’s Oscars.
“The bloom has been off the rose for a while,” a Netflix executive, who requested anonymity to speak candidly, says. “Internally, the feeling that it’s the place to work has been fading long before this. You’re just seeing it now.”
Alex Weprin contributed to this report.
