(Los Angeles) Netflix, which now has 232.5 million subscribers, has set out to convince the market that its transition to more varied and more finely calibrated subscriptions will be profitable in the long term.
For the first quarter, the streaming veteran published results on Tuesday with no big surprises with a slight increase in turnover over one year, to 8.16 billion dollars, and a net profit of 1.3 billion dollars ( -18%).
These figures “rather lukewarm do not prove that the company will be able to revitalize its activities with advertising and paid password sharing”, responded Paul Verna, analyst at Insider Intelligence.
He also noted that the platform gained fewer subscribers than expected by the market during the first three months of the year -1.75 million instead of 2.2 million.
After the pandemic euphoria for digital platforms, Netflix has had a very difficult 2022, pushing company executives to focus more on diversifying revenue streams than growing users.
In November, they launched a new cheaper subscription, with advertising.
“Interest in this new formula exceeds our expectations,” Netflix said in its earnings release, “and we are seeing very few existing subscribers switch” to this less expensive offering.
” Obstacles ”
Above all, the Californian group has found that the subscription with advertising earns it more in the United States than the standard subscription.
But “it seems that the implementation is very slow,” commented Jamie Lumley, analyst at Third Bridge. “Our experts are counting on 10 to 20 million subscriptions with advertising taken out per year, instead of the initial ambition of 40 million”.
The platform also wants to force users to pay to add profiles to their account, instead of sharing their password for free.
This new approach has taken a bit of a hold – it’s only going to arrive this quarter in most countries, including the United States.
But testing and deployment in Latin America and more recently in Canada are conclusive, according to Greg Peters, the company’s co-CEO.
“At the beginning, there are cancellations. And then people who were using borrowed credentials create their own accounts and add profiles, and we regain traction in terms of subscriptions and revenue,” he told an analyst conference.
In the end, the two initiatives “face obstacles and will take time to deploy on a large scale”, regretted Paul Verna.
The end of DVDs
Insider Intelligence estimates that Netflix will generate $770 million in advertising revenue in the United States this year, and more than $1 billion in 2024.
The Disney+ platform also added a new formula with advertising at the end of the year.
But according to the research firm, competition also plays out, and above all, with other entertainment services.
In March, the firm predicted that in 2024 adult American users of TikTok will spend more than 58 minutes per day on average, just behind Netflix (62 minutes), and far ahead of YouTube (48.7 minutes).
Analysts also mentioned the “second screen” phenomenon: “Viewers are often on TikTok while Netflix is playing in the background. Advertisers considering buying advertising on Netflix should be aware that some viewers may be distracted to the point of dropping their streaming program,” they pointed out.
Spencer Neumann, the company’s chief financial officer, had indicated in January that he hoped that advertising would quickly represent 10% of turnover to begin with, and “much more afterwards”.
Netflix also announced on Tuesday that it will end its historic DVD rental service by mail launched 25 years ago by September.
“Our goal has always been to provide the best service to our members, but it has become very complicated with the decrease in this activity”, explained the company.