ECONOMY
Wed 19 Apr 2023 2:35 pm - Jerusalem Time
Netflix is treading cautiously on the road to diversifying its revenues
Netflix , which now has 232.5 million subscribers, is beginning to convince the market that offering more diversified and user-friendly subscription packages pays off in the long run.
On Tuesday, the streaming video giant published financial results that did not carry major surprises, as revenue rose slightly year-on-year to $8.16 billion, with a net profit of $1.3 billion (down 18%).
And Paul Verna, an analyst at Insider Intelligence, considered that these "somewhat tepid" numbers do not prove that the company will be able to activate its activities through advertisements and the imposition of a financial fee for sharing passwords.
He also noted that the number of new subscribers attracted by the platform was lower than what the market expected during the first three months of the year, 1.75 million instead of 2.2 million.
After the big boom during the pandemic, Netflix faced a very difficult year in 2022, which prompted company officials to focus more on diversifying revenue sources rather than increasing users.
In November, the network launched a new, cheaper subscription that included ads with the programmes.
Netflix said in its earnings statement that "interest in this new format has exceeded our expectations, and we're seeing very few existing subscribers switch" to this lower-cost offer.
The giant American group has noticed, in particular, that the subscription formula with ads generates more profits for it in the United States compared to traditional subscriptions.
But Thirdbridge analyst Jamie Lumley noted that "implementation appears to be very slow". "Our experts are counting on 10 to 20 million ad subscriptions annually, instead of the initial ambition of 40 million," he added.
The platform also seeks to force users to pay to add new profiles to their accounts, rather than sharing their password for free.
Implementation of this new approach has been slightly delayed, but is expected this quarter in most countries, including the United States.
The results of the tests on this formula and its publication in Latin America and finally in Canada have been positive, according to the co-general manager of the network, Greg Peters.
"First, the subscriptions get cancelled," Peters told an analyst conference. "Then people who were using pseudonymous profiles create their own accounts and add private profiles, and we get our strength back in terms of subscriptions and revenue."
Ultimately, both initiatives "encounter obstacles and will take time for widespread adoption," says Paul Verna.
Insider Intelligence estimates that Netflix will generate $770 million in ad revenue in the US this year, and more than $1 billion in 2024.
Rival platform Disney Plus also added a new format with ads at the end of last year.
But according to the research firm, competition is also taking place, above all, with other entertainment services.
In March, the company predicted that in 2024, adult US users of TikTok would spend an average of 58 minutes per day on the app, behind Netflix in the rankings with 62 minutes, and ahead of YouTube (48.7 minutes).
Analysts also noted the “second screen” phenomenon, where “viewers often watch clips on TikTok while Netflix is playing in the background. Advertisers considering buying ads on Netflix should be aware that some viewers may get distracted to the point of abandoning the broadcast program.” gushing".
Last January, Spencer Newman, the company's chief financial officer, expressed his hope that ads would quickly represent 10% of Netflix's sales volume at the start, and "much more after that."
Netflix also announced Tuesday that it will end by next September the mail-in DVD rental, a service it launched 25 years ago.
The company explained, "Our goal has always been to provide the best service to our members. But it has become very complicated with the decline in this activity."
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Netflix is treading cautiously on the road to diversifying its revenues