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Netflix’s struggles with waves of subscriber losses, layoffs and a plunging share price is trickling down to its real estate.
The company reported an $80 million writedown in connection with exiting some of its real estate leases, according to Netflix’s quarterly earnings on Tuesday.
This writedown is “primarily related to rightsizing our office footprint,” Netflix co-CEOs Ted Sarandos and Reed Hastings said in a letter to shareholders.
Netflix has already put about 180,000 square feet of office space in Burbank up for sublease, but the writedown suggests more offices will be put on the market. Earlier this month, a company spokesperson said Netflix had “evaluated” its real estate portfolio and would terminate agreements or sublease space that isn’t being used.
Los Gatos-based Netflix isn’t the only company pulling back on office space. Meta and Amazon have both recently bailed on office expansion plans in New York, though aren’t signaling any intent to get rid of existing space.
At one point, Netflix held more than 1.6 million square feet of office and studio space in Hollywood and Burbank, as it tried to cement itself as the most prominent streaming service in the country. Amazon Studios, Apple and Disney have all tried to race to occupy offices and studio space in L.A. — Apple is planning to build a roughly 500,000-square-foot production campus in Culver City.
But, earlier this year, Netflix reported it lost 200,000 subscribers in the first quarter. In the second quarter, Netflix lost almost 1 million subscribers, though its initial forecast suggested it would lose double that.
Though the streaming company’s struggles may worry office landlords, studio developers and investors aren’t concerned and are still bullish on the soundstage asset class in the long term.
“The supply-demand dynamics are still favorable,” Square Mile Capital’s head of acquisitions Jesse Goepel said. “The pressure on Netflix’s stock is driven by Wall Street’s comments on the company, but it shouldn’t be viewed as commentary on streaming in general.”
Netflix has not announced any plans to pull back on studio space, according to studio developers, with most commenting that Netflix isn’t the only one operating in the streaming space.
“It’s not great they’re losing subscribers, don’t get me wrong,” said David Simon, the head of Bardas Investment Group, which is developing studios in L.A. “They had a model and they were the first movers in streaming, but now everybody’s on a level playing field. They all need to learn how to make money in a way that isn’t just about capturing the market share, which means quality product and quality content.”
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