Netflix Seeks More Viewer Engagement Without Sacrificing 30% Margins
Netflix has lost about $135 billion in market value this year, and Bloomberg’s Felix Gillette argues that its immediate challenge is to lift viewer engagement while keeping margins above 30%. With the company’s next year of film and television largely shaped by the previous leadership, Gillette says Netflix must find ways to keep audiences watching without relying too heavily on costly programming such as live sports. One option under consideration, he suggests, is releasing series episodes weekly rather than all at once.
Netflix needs more engagement before a new slate can arrive
Netflix has lost about $135 billion in market value this year, and its shares are down 25%, putting it among the 10 worst performers in the tech-heavy Nasdaq 100. Ahead of earnings, Ed Ludlow framed the concern as slowing sales tied to content. The immediate question is whether Netflix can give viewers more reason to stay engaged.
A Bloomberg year-to-date chart shown during the discussion labels Netflix at -28.48% and the S&P 500 at +14.96%. That does not match Ludlow’s stated 25% decline in Netflix shares; the discussion does not explain the difference. Both figures point to a difficult year for the stock, but the chart supplies a separate comparison rather than a breakdown of the stated market-value loss.
Felix Gillette said Netflix’s dismissal this week of its chief creative officer, who led its film division, would not quickly change what the service can offer. Film and television development takes time; for roughly the next year, Netflix will still be working through the slate created under previous leadership. The immediate strategic question, Gillette said, is what else the company can do to lift engagement, particularly in the United States and Canada, where it has been lagging.
The engagement challenge comes with a margin constraint
Gillette said Netflix has shown it can boost engagement with live sports, but called the approach “incredibly expensive.” The challenge is to attract and hold viewers without letting the cost of programming undermine the company’s margins. He put the constraint plainly: Netflix needs to raise engagement while keeping margins above 30%, and do so “without breaking the bank.”
That leaves a trade-off between programming that can draw audiences and programming that costs less. Netflix has experimented with podcasts, creator content and other cheaper programming. In Gillette’s assessment, those efforts do not seem to have moved the needle. Live sports, by contrast, have demonstrated an ability to boost engagement, but at a high cost. The problem is not simply finding something new to put on the service; it is finding an approach that can improve engagement at a cost consistent with the margin target.
A week before the earnings discussion, Netflix announced plans to cut 6% of its global staff—about 1,000 people. Ludlow noted that senior departures happen from time to time, but described this as a wide layoff and asked what it signaled. Gillette answered by returning to the broader spending question: how to increase engagement while maintaining margins above 30%.
Netflix’s response to its 2022 slump offers a precedent for substantial change. Gillette said the company introduced advertising, despite having said it never would, and cracked down on password sharing. This time, he said, people are waiting to see whether Netflix will make other big changes. The earlier moves show that the company has changed course before; they do not specify what it will do next.
Weekly releases could give a series more chances to build momentum
Ludlow cited The Gentlemen season two as a show he enjoyed, while raising the concern that Netflix has difficulty carrying audiences from one season to the next. Gillette agreed that bringing viewers back has been difficult.
Netflix has traditionally put all episodes of a series up at once. Gillette said the company had long maintained that it would not change that approach, but suggested it might consider releasing one episode per week instead. A weekly schedule would give a series time to build interest and momentum episode by episode, rather than making the entire season available at once. That could create more opportunities to keep viewers engaged as a season unfolds—one possible response to the difficulty of bringing audiences back.
Ludlow noted that Apple TV, HBO Max and Paramount use weekly releases. Gillette presented a change in cadence as one option Netflix might be considering, alongside the larger question of how to increase engagement without relying on expensive programming. He did not describe a confirmed change. The issue is whether Netflix will alter how it releases shows, find a more effective use for cheaper programming, or make another substantial strategic shift.