What Netflix’s Q1 Report Reveal About the Future of the Streaming Industry
By Movieguide® Contributor
Earlier this week, Netflix released their Q1 earnings, revealing they added 1.75 million new subscribers and plan to continue with their password-sharing crackdown.
2022 was a sobering year for streaming companies. When Netflix’s subscriber count fell at the beginning of the year, streaming services realized that there was a limit to their exponential growth and investors started to question the high valuation of these companies. This led to changing business models where high subscriber count was no longer king and the profitability of each company came into focus.
To help boost its image, Netflix announced it would start to crack down on password sharing while introducing a subscription tier with ads. The initial response to this was largely negative, leading to another quarter with falling subscriber counts before the company started to recover and even finish the year with a strong fourth quarter.
At this week’s quarterly report, Netflix revealed that they started the year by bringing in a modest 1.75 million new subscribers, however, the main focus of the meeting was on the progress of the password sharing crackdown.
The new rules on password sharing, essentially banning it, were implemented in Canada, New Zealand, Portugal, and Spain in February to test consumer response. The company found that disallowing password sharing while introducing an ad tier subscription led to better profits, even while dealing with consumer backlash.
With this test data, Netflix has further confidence that this is the best step forward for the company and plans to implement this system in the U.S. sometime during the second quarter. Even if this move decreases the overall subscriber count, the future potential for profitability will increase, something the company now views as more important.
As Netflix starts to rely on ad revenue to generate profits, it shifts the power further into the hands of the consumers. The company will benefit from higher amounts of watch time as more ads are seen, rather than collecting a monthly fee independent of the amount of time spent on the site. Netflix will need to create shows that keep the audience watching to boost their profits as high as possible.
This change in the business model is good for Christian audiences as morally strong, uplifting, and family content are among the most consumed. If Netflix wants to keep people on the site, they will be incentivized to create content that falls under these categories, something Netflix has previously outlined. Furthermore, Netflix is a leader among streaming services, so if this business model proves successful, others will incorporate it into their own, even further increasing the amount of uplifting and moral content created.
Movieguide® previously reported:
Netflix plans to launch an ad-supported subscription option with Microsoft in early 2023 so the company can reach a broader customer base.
“We’ve left a big customer segment off the table, which is people who say: ‘Hey, Netflix is too expensive for me and I don’t mind advertising,’” Netflix Co-CEO and Chief Content Officer Ted Sarandos said during a panel at the Cannes Lions Festival.
This announcement comes after major subscriber losses over the last two quarters. In the second quarter, Netflix lost nearly 1 million subscribers.
While this was only half the expected loss, CEO Reed Hastings explains that “our excitement is tempered by the less bad results.”
Sarandos explains, “We adding an ad tier; we’re not adding ads to Netflix as you know it today. We’re adding an ad tier for folks who say, ‘Hey, I want a lower price and I’ll watch ads.’”
People reports that “as Netflix increases subscription prices, the platform sees an opportunity for lower subscription fees, if a patron is willing to watch ads.”
However, some content will not be eligible for additional advertising.
“Today, the vast majority of what people watch on Netflix, we can include in the ad-supported tier,” Sarandos said.
“There’s some things that don’t and we’re in conversations with the studios on, but if we launched the product today, members in the ad-tier would have a great experience,” he continued. “We will clear some additional content but certainly not all of it but don’t think it’s a material holdback for the business.”
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