Netflix is approaching a critical juncture.
After the U.S. market close on October 20, the streaming giant will release its third-quarter earnings report. The company's stock price has fallen more than 40% over the past year, with user engagement under sustained pressure.
Last week, approximately 1,000 employees were laid off, and content chief Bela Bajaria and film head Dan Lin were successively pushed out, with veteran Disney and Fox executive Peter Rice replacing Bajaria. The departure of two core creative executives has concentrated all pressure directly on co-CEO Ted Sarandos.
According to people familiar with the matter cited by The Wall Street Journal, Sarandos had been complaining internally for months that U.S. users were spending less and less time on Netflix, that the platform lacked new breakout content, and that it had been some time since a phenomenon-level hit on the scale of Stranger Things or Squid Game.
Behind this round of personnel turmoil is a substantial decline in Netflix's content appeal. At the same time, the rise of YouTube and TikTok is diverting a large amount of audience attention.
Executive Earthquake: Two Creative Leaders Depart in Succession
This is a rare concentration of high-level departures in Netflix's history.
According to The Wall Street Journal, at 2 p.m. on the day the layoffs were announced, affected employees immediately lost access to their work email. Hours later, Sarandos informed Bajaria of her departure.
The report noted that the internal restructuring plan was codenamed "Project Meridian," with management initially discussing cutting as many as 10% of positions before settling on approximately 6% after consultations with department heads.
The departure of film head Dan Lin was particularly dramatic:
The day before the incident, he had appeared on stage with Sarandos at the star-studded Academy Museum Gala, enjoying a live performance by Taylor Swift;
On Sunday evening, he attended a screening of La Bola Negra on the Netflix campus;
On Monday, the company announced his departure, with Rice stepping in on an interim basis until a new film chief is in place.
Peter Rice, who replaces Bajaria, enjoys an excellent reputation in the industry. Netflix said Rice will take up his post this week, overseeing a global content budget of approximately $20 billion, covering series, films, and live content such as sports events.
Analysts believe the departure of two heavyweight executives leaves Sarandos with little room for a "scapegoat" on the creative front. If upcoming earnings data and business metrics remain unsatisfactory, public criticism will be directed squarely at the co-CEO himself.
User Growth Hits a Ceiling, Engagement Becomes Core Vulnerability
Netflix's pressure comes not only from personnel changes but also from user data.
Tracking data from analytics firm Antenna shows that as of the end of September this year, Netflix's net new users in the U.S. market were zero every month this year.
Netflix responded that Antenna's data "does not represent Netflix's actual business performance," but did not provide specific countervailing data — in fact, the company has not disclosed user growth figures since early 2025.
In terms of churn rate, Netflix remains the lowest in the industry, with a monthly churn rate of only 2.1% in the U.S. market in September, and its overall subscriber base remains solid, with global paid users exceeding 300 million. However, the divergence between total users and user engagement time is becoming a deep-seated contradiction for the platform.
The gaming business is another weak spot. A recent internal memo from Netflix shows that users who engage with gaming features monthly account for only 3.5% of all subscribers, and the business is about 10% behind the user coverage and engagement targets set for 2026.
Strategic Pivot: Overhauling Everything from Algorithms to Content
Facing declining engagement, Netflix is restructuring its content strategy on multiple levels.
At the algorithm level, Netflix has long prohibited human intervention in its recommendation system internally, a practice known as "thumb on the scale." But according to people familiar with the matter cited in reports, in recent months, executives have increasingly intervened in recommendation logic to boost viewership of specific shows and exposure for new content formats.
At the same time, the platform has reduced proactive promotion of games and podcasts, refocusing resources on its core television and film business.
In terms of distribution models, Netflix is taking an important step by betting on large-scale theatrical releases for some films. The company plans to give films such as Charlie vs. the Chocolate Factory and Narnia: The Magician's Nephew at least a 45-day theatrical window, aligning with traditional theatrical distribution methods.
The day before the Narnia trailer was released, its psychedelic-style preview set to Led Zeppelin's "Stairway to Heaven" quickly racked up nearly 80 million views on YouTube.
Additionally, according to people familiar with the matter, Netflix is internally discussing whether to adjust the release cadence of some series — moving away from the customary practice of dropping all episodes at once in favor of the weekly release model widely adopted by competitors.
Co-CEO Sarandos is currently resistant to this, as internal company data shows users prefer the binge-watching experience.
In terms of expanding content categories, Netflix has signed podcast deals over the past year with Spotify, Barstool Sports, iHeartMedia, and Jay Shetty's "On Purpose," attempting to funnel users from YouTube to its own platform;
On the sports rights front, Netflix added an NFL package and secured international World Cup live broadcast rights and rights to some MLB games.
Historical Precedent: Sarandos Has Led Netflix Out of Crises Multiple Times
The current predicament is not the first life-or-death test Sarandos has faced.
In 2011, Netflix attempted to split its streaming and DVD businesses into two companies, renaming the DVD business "Qwikster." The decision triggered strong market backlash, and then-CEO Reed Hastings announced the reversal within less than a month, after which the stock price recovered.
A bigger crisis occurred in April 2022. Netflix recorded its first-ever net user loss that quarter, amounting to approximately 200,000, followed by nearly 1 million more lost in the next quarter. Panic spread on Wall Street, and the stock price plummeted. Sarandos promptly launched two key initiatives:
First, a large-scale crackdown on password sharing, forcing a large number of free-riding users to pay;
Second, the rapid launch of a lower-priced ad-supported subscription tier, offering a retention option for price-sensitive users.
After that, Netflix's user base gradually grew to over 300 million, and the company used the opportunity to build an advertising monetization business.
In a research note released last week, Wedbush pointed out that improving user engagement will take time, and personnel turmoil will further lengthen this cycle, but advertising revenue is expected to "double to approximately $3 billion by 2026," maintaining a 12-month target stock price of $90.
Awards season is also a battleground Sarandos needs to compete for. Netflix has yet to win the Oscar for Best Picture, and La Bola Negra is seen by industry insiders as its most competitive opportunity at present.
This may be a victory more symbolic than commercially impactful, but for Sarandos, who is striving to revive market confidence, any positive signal at this point is welcome.
Comments