"Thanks to God, we finally got out of the quarterly
decline."
The number of members rebounded in the third quarter and
rose by 2.41 million, and a low-cost subscription plan with ads will be
launched next month
At the third-quarter earnings report, Netflix co-CEO Reed
Hastings was overjoyed: "We're back on a positive track."
On October 18, local time, Netflix released its financial
report for the third quarter of 2022. The company's revenue in the third
quarter reached US$7.92 billion, a slight decrease from the second quarter, but
higher than the market 's expected US$7.85 billion; profit was US$1.4 billion,
down 3% year-on-year, and the US stock profit was US$3.1, but higher than the
market's expected US$2.13 .
At the same time, Netflix finally ushered in the good
news of the increase in the number of subscribers: the total number of Netflix
subscribers increased by 2.41 million in the third quarter, and the total
number of global subscribers reached 223 million.
The overall performance exceeded expectations, which is
invaluable for Netflix in 2022. Netflix lost 200,000 and 970,000 subscribers in
the first and second quarters of this year, the company's first decline since
2011. Negative news such as layoffs and content cost cuts followed. Netflix’s
performance in the capital market has also plummeted: from the beginning of the
year to the close of the U.S. stock market on Tuesday, Netflix’s stock price
has fallen by 60%.
After the earnings report was released, on October 19,
Netflix US stocks rose nearly 13% before the market.
Behind the increase in the number of subscribers is
Netflix's lineup of works in the third quarter. In the past three months,
Netflix has launched the fourth season of the popular American drama
"Stranger Things", with a total viewing time of 1.35 billion hours,
making it the most watched English-language series on Netflix ever. The hit
Korean drama "Very Lawyer Yu Young-min" topped the list of
non-English-language dramas in 28 countries, with a total of 402 million hours
watched in 28 days.
However, it is not only the number of subscribers and the
film list in the third quarter that have attracted attention. Netflix's
upcoming "low-cost subscription plan with ads" is the focus of the
audience. The total duration of the third-quarter earnings report was 42
minutes, and executives spent nearly 15 minutes answering questions about
advertising revenue.
During the new crown epidemic, Netflix ushered in a
period of rapid user growth. However, after streaming media has gained a
foothold in the North American market and international market, the number of
streaming media users has also hit the ceiling. Companies must find new ways to
increase revenue, and advertising is one of those.
As early as the first quarter of 2022, Netflix signaled
the launch of an ad-supported subscription plan. The plan came to fruition
quickly. In July, Netflix identified Microsoft as an ad server. In September,
Netflix told advertisers that its low-cost subscription plan with ads would
reach 40 million subscribers in 2023.
Netflix's use of advertising as a new way to boost
performance has raised eyebrows from investors. According to The Hollywood
Reporter, JPMorgan Chase said in a research report released on October 10 that
advertising is critical for Netflix to re-accelerate and increase revenue, and
the new subscription plan can increase the size of Netflix’s serviceable
market.
But there is no lack of doubts about the advertising plan
in the market. Investment agency MoffettNathanson pointed out in the research
report that whether the advertising solutions provided by Microsoft can help
Netflix survive the poor business performance is the key to the advertising
model. In addition, the research report also pointed out that users may
"consumption downgrade": abandon high-priced subscription plans and
switch to low-priced subscription plans.
On October 14, Netflix officially announced that it will
launch the "Basic with Ads" program. Users who choose this
subscription plan will need to watch 5 minutes of ads every hour. Other
subscription plans remain ad-free.
Netflix said in its shareholder letter that the
"Basic plan with ads" will reduce the price of the existing minimum
subscription plan by 20% to 40%. For example, in the U.S. market where pricing
has been announced, the "Basic plan with ads" is priced at $6.99/month,
and existing subscription plans are priced at $9.99/month (Basic), $15.49/month
(Standard), and $19.99/month, respectively. Month (Premium).
From November 2 to November 10, the "Basic
Plan" will be launched in 12 countries including Canada, Mexico,
Australia, Brazil, France, Germany, Italy, Japan, South Korea, the United
Kingdom, the United States and Spain. Competitor Disney+'s same "low-cost
subscription plan with ads" is expected to launch in December, giving
Netflix a month ahead.
Netflix executives are bullish on the prospects for ad
revenue. On the consumer side, the company's COO and chief product officer,
Greg Peters, believes that the "Basic plan with ads" is not priced
very high and is expected to attract a large number of new users to subscribe
to Netflix. He also emphasized that most of the original Netflix users will
maintain the original high-priced subscription plan, because Netflix users rarely
downgrade their subscription plans.
At the same time, in Netflix's view, advertisers have
also shown enthusiasm for advertising. When the "Basic Plan with Ads"
was released on the 13th, Netflix said that the company had almost sold out its
advertising space and that hundreds of advertisers had signed up.
However, the observed demand does not represent the
maturity of the advertising model. According to Netflix 's shareholder letter,
the company does not expect the "basic plan with ads" to have a
significant impact on its fourth-quarter financial performance. Netflix
executives said in the earnings call that the exploration of advertising
revenue is still in the early stages.
Netflix executives speculate that the low-cost
subscription plan with ads will help Netflix reduce user churn, but the core
method of reducing user churn is still to "please users" through
works.
Netflix expects fourth-quarter revenue to fall to $7.8
billion and 4.5 million new subscribers due to the strong dollar. Starting next
quarter, Netflix will no longer forecast subscriber growth numbers, and the
focus will shift to revenue numbers.
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