New York, Dusseldorf Reed Hastings is relieved. “Thank God we have the quarters with declines behind us,” said the Netflix boss on Wednesday night. After the streaming giant lost 1.2 million customers in the first half of the year, the number of users worldwide rose by 2.4 million in the past quarter. Analysts had only expected an increase of around one million. In total, Netflix has 223.2 million customers.
The stock reacted with drastic price gains. The paper rose by 14 percent at the start of trading in America. Overall, however, the share certificates have lost 50 percent of their value in the past twelve months.
After a decade of rapid growth for the streaming giant, the recent loss of users was seen as a warning sign. Netflix is suffering from inflation-related consumer restraint, but is also struggling with increasing competition.
Together, the three Disney streaming services Disney+, Hulu, which is popular in the USA, and the sports program ESPN+ overtook Netflix in terms of user numbers in the summer. Now Netflix has taken the lead again for the time being, Disney will present its figures at the beginning of November. “We believe we are on a path to accelerating growth again,” Netflix wrote in a letter to shareholders.
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The recent plus is primarily explained by better content. Drivers were the fourth season of “Stranger Things” and the new true crime thriller series “Dahmer”, which is about a US serial killer. Since the release on September 21, the series has been watched a total of 824 million hours. This makes it one of the three most watched Netflix series ever.
Industry observers had called for improvements to Netflix content. The company had admitted this itself. Competitors like Disney have strong brands like “Star Wars” or “Marvel” that Netflix doesn’t have in its portfolio. In the current quarter, Netflix has high hopes for the fifth season of its hit series “The Crown” about the British royal family.
The large investments in production and marketing seem to be paying off: The net profit therefore fell in the most recent quarter compared to the same period last year by a good three percent to 1.4 billion dollars. In the final quarter, Netflix only expects earnings of $163 million. Streaming providers usually invest more money in winter because users then have more time for series.
Growth mainly in Asia
Regionally, recent growth can be explained by gains in Asia and the Pacific. Here the number of users rose by 1.4 million to 36.2 million. In the USA and Canada, on the other hand, the numbers stagnated again.
“Netflix does not yet have such a high level of market penetration in growth regions such as Asia,” explains Bernd Riefler, head of the Munich-based analysis company Veed Analytics. “It’s easier to address new target groups there than in regions like America, where Netflix has already reached a lot of people.”
In Europe, Middle East and Africa (EMEA), the number of users increased by 560,000 to 73.5 million. For the first time, Netflix has more subscribers in this economic zone than in its home market of North America (73.4 million).
Far from previous growth
The recent plus should not hide the fact that Netflix is no longer achieving the growth rates of earlier times. The company expects another 4.5 million new customers by the turn of the year. In the final quarter of 2021, Netflix gained 8.3 million users.
This is also due to the increasing competition. Once alone on the market, industry experts now count over 200 streaming services worldwide. And more are coming: In the summer, the US film distributor Warner Bros. launched Discovery+ in Germany, and Paramount+ will be added in December.
With the true crime thriller, the streaming service has achieved another hit.
(Photo: Netflix)
Netflix could not resist a dig at the competition in the annual report: the rivals would sometimes accept deep red numbers when chasing market share in the streaming business. “We estimate that they are all losing money,” the letter said.
Overall, the competition is likely to incur operating losses of well over $10 billion in 2022, writes Netflix, while expecting an operating profit of $5 to $6 billion. “Building a large and successful streaming business is tough,” the company said. In fact, Netflix makes more money per user than its competitors, which speaks to the maturity of its business model.
But Netflix has enough of its own construction sites. “So far, it’s been enough for Netflix to be the largest player in the market,” said Sophie Lund-Yates, an analyst at trading house Hargreaves Lansdown. But that’s over. Netflix is faced with the balancing act of investing in new hit series and at the same time having to maintain its spending discipline.
New subscription with advertising should bring growth – experts are skeptical
Netflix wants to generate further growth with a new subscription model. Customers can choose from another plan that costs less but includes advertising. Netflix boss Hastings had resisted this for a long time. But now the group hopes to gain around 40 million new users in 2023 alone, for whom the standard subscription has so far been too expensive.
Netflix announced last week that it would launch the advertising variant in Germany and eleven other countries in November. When it was announced in spring, Netflix was still talking about early 2023.
>> Read more: Netflix starts cheap subscription in Germany – viewers have to endure so much advertising
The main competitor, Disney, will not be launching its advertising variant until December and initially only in the USA. “Netflix was quick to implement its advertising-financed subscription model and may also want to demonstrate to the competition how quickly you can act,” says streaming expert Riefler.
The advertising subscription from Netflix will cost 4.99 euros per month in Germany. The previous basic tariff is 7.99 euros, Netflix charges 12.99 euros for the standard tariff. Analyst Lund-Janes says Netflix is at risk of driving existing customers into cheaper subscriptions.
Raj Shah from the consulting firm Publicis Sapient also fears that Netflix’s hopes may not be fulfilled. “Even an inexpensive tariff will only be able to retain subscribers with high-quality content,” says the North America expert. Netflix releases 700 titles a year, more than any other provider. “In order to grow, however, you need less quantity and more quality.”
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