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Netflix Q2 subs losses and bounce-back plan
Q: When is losing 1 million customers in a single quarter good news?
A: When you expected to lose 2 million
At least, that was the vibe on Netflix’s quarterly earnings call yesterday, in which Reed Hastings described the company’s Q2 2022 results as “less bad” and set an optimistic tone for Q3 and beyond.
So, what are Netflix’s reasons to be hopeful?
As mentioned in my March post, the content slate is looking strong for Netflix for the rest of 2022. The release of the first seven episodes of Stranger Things Season 4 at the end of May will have helped pull subs back up in the final month of the quarter and the release of the final two episodes on 1st July will help get Q3 off to a strong start, as will $200m Ryan Gosling action thriller The Gray Man, which drops this Friday. August will bring The Sandman, the highly-anticipated adaptation of the critically-acclaimed fantasy comic book series and September includes Marilyn Monroe biopic (and Netflix’s first NC-17 rated release) Blonde.
Netflix knew subs would take a hit as a result of the recent price hikes. However, they’re done now and they shouldn’t need to bump them again for a while. Most subscribers who couldn’t afford/stomach £10.99/€14.99/$15.49 for the standard plan will have cancelled by now and Netflix will be hoping they can be won back by must-see content and/or the cheaper ad-supported tier when it arrives.
Account sharing alternatives
Following tests of ‘add extra member’ functionality in Chile, Costa Rica, and Peru in March, Netflix announced this week it will launch an alternative ‘add a home’ feature in Argentina, the Dominican Republic, El Salvador, Guatemala, and Honduras next month. With an estimated 100 million households piggybacking on someone else’s subscription, even a small percentage uptake could have a material impact on the bottom line and CPO & COO Greg Peters seemed confident on yesterday’s call of a wider rollout in 2023.
Advertising (and maybe more) partner
Last week Netflix announced it’s partnering with Microsoft for its ad-supported tier, which it’s hoping to launch in early 2023. As well as demonstrating progress towards an advertising solution to investors, the tie-up has also prompted speculation that Netflix could be hoping to be bought by Microsoft. Whilst I can believe Netflix might be up for that, I can’t see it stacking up for Microsoft as it doesn’t support any of their major lines of business in the way that the Activision Blizzard acquisition did with Xbox (Netflix might wish they were a major player in gaming but they’re not yet).
Of course, it’s the job of Netflix’s Exec team to be positive. What are some of the reasons not to believe?
Whilst no single streaming service is within catching distance of Netflix yet, the aggregate effect of so many well-heeled players is evident in new data from Parrot Analytics which indicates that Amazon Prime Video, Disney+, HBO Max, Apple TV+, Hulu and Paramount+ together account for a larger percentage of the streaming originals pie than Netflix (45.1% vs 41.2%).
The economy, stupid
Whilst Netflix’s top team were keen to remind investors that recessions tend to be good for home entertainment, it’s unknown how a global economic downturn will play out for SVOD services, especially those without any other profitable verticals to fall back on (a la Amazon, Apple & Disney). Inflation is only going to put more pressure on Netflix’s production costs. Meanwhile, the cost of living crisis may prompt something of a renaissance for free-to-view TV. Speaking of which…
Misplaced confidence in the death of linear TV
In Reed Hastings’ relatively small amount of air-time on yesterday’s earnings call, he said “it’s definitely the end of linear TV in the next five, ten years”. He’s wrong. Whilst on-demand is likely to take an increasingly large slice of the viewing pie, linear channels are making the transition to the streaming age and won’t disappear within the next 10 years. If Reed Hastings’ confidence in the future of Netflix is predicated on the death of linear TV then he’s going to be disappointed (see my piece on the future of live TV).
Whilst Netflix’s forecast of 1m subscriber adds in Q3 2022 seems reasonable, it would only get them back to where they were last quarter. Q4 feels higher stakes, especially when Q4 last year saw 8.3m subscriber adds. I’ll get the popcorn…
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