Netflix is currently in a downturn – and the reason is not just that you can't find a popular new drama to watch.

So, where lies the problem?

The viewership growth of Netflix is slowing down, while free competitors such as YouTube are gaining momentum. Meanwhile, projects like games and podcasts have not yet become hits. Additionally, the company surprisingly made a bid for Warner Bros before subsequently abandoning the deal, which has begun to cause some investors concern.

Co-CEOs Ted Sarandos and Greg Peters stated in a memorandum that entertaining the world "requires us to maintain discipline in prioritizing the allocation of personnel and resources," but they added that the company is still on track to achieve its financial targets this year as planned.

Many of the problems faced by Netflix are not unique to this "Stranger Things" production company. Netflix once revolutionized Hollywood by pioneering paid television streaming and had a significant impact on culture.

EMARKETER Media analyst, Business Insider Sister company Ross Benes stated: "Even top-tier streaming companies are not immune to stagnation and financial difficulties."

Disney and other entertainment giants such as NBCUniversal have also recently turned to layoffs.

The following are the five major challenges currently faced by Netflix.

Participation growth is slowing down.

Although the revenue of Netflix is still growing at a healthy pace and generating billions of dollars in profits, Wall Street is concerned about its viewing trends.

Netflix co-chaired with CEO Ted Sarandos said to Bloomberg last month at an event: "Our growth is not as fast as I would like, and we are working hard to make this change happen more quickly."

Netflix experienced a 2% year-on-year increase in global viewing hours in the first half of 2026, reaching 97 billion hours. Last quarter, this streaming giant also announced that it would change its engagement reporting from twice a year to once a year.

When announcing this change, Netflix said to investors, "Participation doesn't just refer to the duration of viewing, but also to the quality and diversity of our content supply."

Investors are concerned that a slowdown in participation growth may weaken Netflix's ability to retain customers and persuade them to pay higher fees, despite the industry's low cancellation rates for this streaming service.

The lack of new hit shows also worries the analysts at Netflix. "Stranger Things" was the largest series on the platform to date and concluded last year, so Netflix needs to find new series and popular works to take its place.

Katz said, "Entertainment is essentially a subjective industry with significant fluctuations."

Greg Peters once stated that Netflix is considering launching free services in some markets.

Benes said, 'As pressure continues to rise, Netflix will attempt to boost itself through low-cost content in order to turn the situation around.'

3. After the bidding for Warner Bros failed at Netflix, the narrative on Wall Street turned negative.

Although the acquisition of HBO Max and Warner Bros studios could have boosted Netflix, investors are concerned that this indicates that Netflix's management no longer has new ideas for growth, as Netflix has not frequently engaged in major mergers and acquisitions in its history. In addition to this, shareholders are also worried that Netflix will incur substantial debt and go through a complex integration process.

Although Netflix received a breakup fee of $2.8 billion after the transaction collapsed, the stock price never fully recovered.

4. Games and podcasts have not yet become hits.

Netflix is making great efforts to advance its gaming and podcast businesses, but so far, neither has become a project that can change the situation.

This streaming service shut down two game studios this summer and laid off some employees in October 2024.

Research institution TVREV media analyst Alan Wolk stated that gaming "is not a bad idea," but it is highly unlikely to "bring in any new subscriptions." He added, "It remains to be seen whether people will start watching podcasts on Netflix," and suggested that the streaming service should adjust its mobile app interface to improve the user experience.

However, Katz believes that podcasts are a low-cost way to expand into vertical fields such as journalism, and they can also serve as a type of content that people develop a habit of listening to, like playing music while doing laundry.

5. Sports rights are expensive and are locked in for a long time.

Another way Netflix attempts to increase engagement is by investing in live sports events – including one-off events such as the NFL matches on the day before Christmas and Thanksgiving, the MLB Home Run Contest, as well as boxing matches between Tyson Fury and Anthony Joshua.

Although Netflix executives stated that these events have brought about exceptionally high subscription growth rates, due to the bidding wars between television networks such as ESPN and technology giants like Amazon and YouTube, sports rights have also become increasingly expensive.

However, sports are not cheap, and they have little to no replay value at all. Therefore, they are more of a temporary remedy to increase engagement rather than a long-term driving factor for the duration of viewing.

Netflix also must remain creative in sports investing, as most of the top rights – from major NFL broadcasting packages to NBA, college football, NFL, and international soccer – have been secured for many years. The streaming service has indeed obtained the live broadcasting rights for the 2027 and 2031 Women's World Cups and hopes to capitalize on this cultural craze.