Revenue Up 11.8%, Ad Forecast Down 10%: Netflix Has a Problem

Netflix's co-CEOs said on October 20 that a slowdown in U.S. viewing and softer ad sales are tied to the shake-up of its content leadership, which has removed its chief content officer and its film chief ^[1].

Ted Sarandos and Greg Peters made the connection during the company's third-quarter earnings discussion, according to Variety's report of the call ^[1]. It is unusual for a streamer to say, in so many words, that the shows themselves are part of the problem.

The shake-up

Netflix has appointed Peter Rice, a former Fox and Disney executive, to replace chief content officer Bela Bajaria. Rice was due to start the following week ^[1][3].

The company has also let go Dan Lin, who ran its film division, along with his senior lieutenant Doug Belgrad and Carolina Garcia, the director of original series ^[2][3]. The departures came amid a layoff of about 1,000 employees ^[2]. Sarandos said he would temporarily oversee film while Netflix looks for a successor to Lin ^[1][3].

Sarandos framed it as a chance to do more. Netflix, he said, has an opportunity to take its slate to the next level, especially in the U.S., where one big, buzzy show can have an outsized effect ^[1][3]. He said the company was focusing on execution ^[1][3].

In Variety's account of his remarks he put it plainly: "I know that we could do better" ^[3].

He described Rice as someone with expertise in both art and commerce, television and film, who understands talent relations and can help Netflix stay a place where creative people want to do their best work ^[1][3].

What the numbers say, and what they don't

The results are not those of a company in free fall. Netflix reported third-quarter revenue of $12.87 billion, up 11.8% from a year earlier, and forecast $13.4 billion for the fourth quarter, about 11.5% higher ^[2]. Peters said the quality, quantity and variety of viewing remained healthy, and that churn, the rate at which subscribers cancel, improved in the U.S. and globally, even after price increases ^[1].

The weak spot is advertising. Netflix now expects about $2.7 billion in ad revenue for 2026, down from its earlier forecast of about $3 billion ^[2]. That is a cut of $300 million, or 10%.

The company's stated reason is mechanical. It blamed a slightly slower-than-expected rollout of some ad-product capabilities, meaning the tools for selling and delivering ads, not a collapse in demand ^[2]. Nothing published so far says how much U.S. viewing slowed, or whether U.S. ad sales themselves weakened.

Yet the executives drew the line between the three things themselves. Viewing, ad sales and the content team went into the same sentence.

The incentive problem

What follows is the paper's reading, not Netflix's stated plan. Nobody at Netflix has announced a mandate for safer or more advertiser-friendly programming, and the executives spent much of the call defending the opposite.

But look at what an ad business needs. A subscription service is paid whether you watch a show or not, so long as you do not cancel. An advertiser pays for eyeballs, in volume, at the moment they are on screen.

That favors the shows a lot of people will put on at once, and it disfavors the strange, slow or specialist title that a few people adore.

Netflix has just told investors its ad forecast is $300 million lighter than it hoped. It has also said U.S. viewing is soft and that the people who picked the shows had to go. Put those side by side and the pull toward the broad middle is easy to see.

The man chosen to lead is a useful signal, though only a signal. Rice comes from Fox and Disney, companies built on programming for mass audiences as well as on prestige ^[1]. Sarandos's own phrase for him, art and commerce, tells you which half of the pair the company is stressing this month.

The counter-argument, which Netflix is making loudly

The executives pushed back on any narrow reading. CFO Spencer Neumann said the company was not overly dependent on one title, genre, format or region ^[1]. Sarandos said Netflix wanted a steady run of hits, including titles that travel internationally ^[1].

The numbers they offered lean outward. Peters said viewing hours in India grew 24% in the quarter, with hours per member there rising too. He credited local titles in India, Korea, Japan and the Nordics for driving engagement and business growth ^[1].

That matters for the ad story as well. Netflix plans to launch its ad-supported tier in 15 more countries during 2027, with the first group due in March ^[2].

Much of the ad business Netflix is trying to build will be sold abroad, to audiences that do not watch what Americans watch. A service that retreated to a U.S.-style middle would be walking away from the places where its viewing is growing fastest.

So the tension is real and it is Netflix's own. It wants a big American hit that everyone talks about. It also wants to keep the Korean, Indian and Nordic work that its executives say is feeding growth. Those goals can coexist, but they compete for the same budget and the same slots.

What to watch

The first real evidence will be commissions and renewals under Rice. Which shows get a second season, which get quietly dropped, and whether the new orders look like the old Netflix or like a network schedule with a better search bar. Rice's exact authority over budgets is not yet known, and Lin's successor has not been named.

Then come the tests Netflix has set itself. U.S. viewing has to recover, and the ad tools have to arrive on time, with the first new ad-tier countries due in March ^[2].