Netflix has biggest quarter since Q2 2020
Netflix recently reported Q3 earnings, adding almost 9m new subscribers globally, the most since Q2 2020, the first quarter after the COVID pandemic began. Global subs now stand at 247.15 million, while UCAN grew by 1.75 million QoQ subs to 77.32m. Subscriber growth attributed to strong programming and conversions from the password-sharing crackdown. The crackdown has been successful, beating internal models, and is now revenue positive in all countries where the crackdown has been enforced. Revenue was up 8% and net income was up 20%.
Prices were also increased on the basic (+$2) and premium (+$3) tiers, effective immediately. Of note, the basic tier was discontinued in July, so the price increase on that tier will serve as a catalyst for conversion to the lower-priced (and more profitable) ad-supported tier or the more feature-rich standard tier.
Speaking of ads… The ad-tier has struggled to gain momentum, but Q3 numbers offer hope, with a 70% increase quarter over quarter, and co-CEO Greg Peters said that roughly 30% of all new subs are entering on the ad tier. Netflix VP of Global Advertising Sales Peter Naylor recently introduced new ad formats, including title sponsorships for a single movie, show, or season. A new “binge” format will be implemented, wherein a viewer who binges three episodes on the ad tier will have ads removed from a fourth episode. Also introduced were live event sponsorships, which offer the added benefit of affecting all subscription tiers, since live events are not bound to a particular subscription tier.
Q3 growth was tied to successful content. Two stand outs (with wildly different target audiences) include the live-action original adaptation of the manga “One Piece,” and the licensed USA Network series “Suits.” Both series drew large audiences and sustained viewership for many weeks. On licensed content, co-CEO Ted Sarandos said, "Licensing has always been an important part of our programming strategy… We can’t make everything, but we can help you find just about anything.” Future licensed content will see HBO’s “True Blood” and “Six Feet Under” making their Netflix debuts in Q4.
Netflix will also be introducing its first-ever live sporting event, “The Netflix Cup,” set to air on November 14. The nine-hole match play golf tournament will pit four pairs of golfers competing over eight holes, with a one-hole playoff among the top two pairs to decide the winner. One player per pair will be from the Netflix original “Full Swing,” while the other will be a driver from “Formula 1: Drive to Survive.” If the pro-am pairings seem like an odd fit, the timing is not. The live tournament will take place in Las Vegas just days before the November 18 Las Vegas Grand Prix.
Netflix is also expanding its video game footprint with the rollout of a cloud gaming interface wherein players can use their smartphones as controllers and their TVs as gaming consoles. Games are free with a Netflix subscription, and Netflix is also rumored to be developing a triple-A game of its own.
The Circana Take:
- Netflix has not only addressed the criticism of the last few quarters but navigated a path forward on each challenge they face, albeit with varying degrees of success.
- Password-sharing has gone better than expected, while ads have gotten off to a sluggish start. Yet, this most recent quarter offers hope, and the price increases will serve to bolster revenue and profit for the next few quarters.
- Netflix is still the gold standard of streaming, and Q3 results show that they continue to dominate, even as they adapt to new business paradigms. They have also remained profitable despite the internal challenges of these new business paradigms and external headwinds facing the industry as a whole.