What’s Behind Netflix’s Struggles?

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What we noticed most is that we've moved AI off the screen into the physical world.

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That's Tanguy Katlan, senior partner of McKinsey and director of the McKinsey Global Institute. AI, he says, no longer lives in a computer, but is tangible in robotics, engineering, space travel and more. One of the 14 key points identified by McKinsey in its 2026 Technology Trends Outlook. At the break, join McKinsey to learn how these trends are shaping innovation and how leaders should respond.

Danny Lewis (0:34)

Welcome to Tech News Briefing. It's Tuesday, October 20th. I'm Danny Lewis for the Wall Street Journal. Streaming has taken over how Hollywood does business. But the company that kickstarted the transformation of the entertainment industry, Netflix, is struggling. Last week, the company cut 6 percent of its staff, about 1,000 people, with content and film executives shown the door.

Its stock has taken a hit too. It's down about 40 percent from this time last year. To top it all off, Netflix is set to release its latest quarterly earnings later today. Here now to discuss what's happening at Netflix and what it means for the streaming giant's future is WSJ Deputy Media Editor Jessica Toonkel.

Jessica, this is Netflix, the company behind Stranger Things, Bridgerton, Squid Game. What's going on here?

Jessica Toonkel (1:21)

I mean, it really seems like Netflix, which has long been the 800-pound gorilla in the streaming world, is admitting it has a content problem, right? It has a programming issue. It is replacing its top content talent, the executives that were in charge of movies and shows, bringing in new people and having layoffs, which it hasn't done since 2022

Danny Lewis (1:45)

Well, Netflix did try to buy parts of Warner Brothers' discovery earlier this year, before it was outbid by David Ellison's Paramount. How much of Netflix's current struggles are a result of that deal going south?

Jessica Toonkel (1:57)

You know, I think that the bid for Warner's studio and streaming assets, it was a sign of weakness to investors, right? Investors saw that and said, wait, you've always said you are a builder, not a buyer, and now you're looking to make a pretty big acquisition. Does this mean you need it?

And it spooked folks, and the stock last time I checked was down more than 40% over the past year.

Danny Lewis (2:24)

And how much has this issue with its content been playing out for their subscriber data?

Jessica Toonkel (2:30)

Growth is slowing overall, and the company has admitted that, that growth is slowing. The other big issue, and just to back up, Netflix is very metrics oriented. They've always been focused on that. And one thing that they look at is what they call subscriber engagement, which is the amount of time that subscribers are actually spending watching their shows and movies. And that has been on a decline this year.

And depending on how you measure it, you could say it's getting better. But we know from our sources that that has been a source of concern, and they're talking about doing all these new things. We were first to report that they were looking at bundling with NBCU's Peacock as a way to address this issue. They've also discussed doing live channels on their service, kind of like what Tubi does or Pluto TV, just to get people on the platform more.

Danny Lewis (3:23)

Two major casualties of these layoffs were Chief Content Officer Bella Bajaria and Film Chief Dan Lin. Why were they both let go?

Jessica Toonkel (3:32)

I think it was this realization that they have a programming problem. Netflix has not had a hit this year. Stranger Things is over, Squid Game is over, Bridgerton continues, but they need continuous hits. I think this is an admission that they need to refresh the executives involved, whether that's true or not. I don't know. Some people would argue these are the scapegoats. They were just doing what they were told to do.

But I think it's their way of saying, we're starting over. We're going to start over.

Danny Lewis (4:05)

So what would starting over at this point mean for Netflix's future?

Jessica Toonkel (4:09)

So I think what you're going to hear Netflix talk about at earnings is a refocus on the core.

In the past five years, they've been trying to do more with games. They have gotten into video podcasts recently, doing more with creators. I'm not saying that they're going to abandon those efforts, but I do think that they're going to say, we want to really focus on our movies and shows, because that's what delights our subscribers, and we want to make sure that we keep them happy.