Get your free copy of Editor’s Digest
FT editor Roula Khalaf picks her favourite stories in this weekly newsletter.
Netflix added 8 million new subscribers in the second quarter thanks to its hit shows. Baby Reindeer and Bridgerton, The streaming service’s revenue and profit beat Wall Street expectations.
Netflix’s new subscriber numbers were its most for a second quarter since 2020, when it saw explosive growth during the pandemic, but the company warned that it would add fewer new subscribers this quarter than it did a year ago, when its crackdown on password sharing went into full effect.
Profit rose 48% to $4.88 per share, and revenue rose to $9.6 billion, beating Wall Street expectations. Netflix also raised its full-year revenue forecast, saying it “reflects strong subscriber growth trends and business momentum.”
Netflix said its ad-tier segment currently accounts for 45% of subscriptions in markets where it serves, but doesn’t expect it to become a “major driver of revenue growth” until 2024 or 2025. Ad-tier subscriptions grew 34% from the previous quarter.
Netflix’s strength contrasts with the continuing growing pains of traditional studio streaming services, which are unprofitable or only marginally profitable. In a letter to shareholders, Netflix pointed to the struggles of its rivals, saying they “are investing heavily in premium content, yet their streaming services and linear viewership is relatively low.” [TV] “It continues to decrease.”
Netflix co-chief executive Greg Peters said its “top priority is to build scale” for its advertising business, and the company is doing so by hiring new salespeople and building its own ad platform to replace the current Microsoft system. “This will enable a suite of innovations, a better user experience and better advertising capabilities,” he said.
Paolo Pescatore, an analyst at PP Foresight, said scaling up its advertising business has taken longer than expected, especially given Netflix’s “extensive data on viewing attitudes and habits.”
“Netflix is going up against much larger tech giants that have huge bases and scale,” he said, citing Amazon, Meta and Google. “Netflix is obviously taking a really long time given its smaller advertising base.”
Netflix has been adding one-off sporting events to its programming, including a golf tournament, a Mike Tyson bout and two Christmas Day football games, leaving Wall Street wondering whether the company will strike deals with sports leagues.
Co-CEO Ted Sarandos poured cold water on the idea of a big sports deal: “It’s very hard to make money on big league sports when there’s an entire season,” he said. “Making shows for Netflix is a big step forward.” [sports] At events, we don’t carry large amounts of cargo. This is the economics we like and can accept.”
Asked about artificial intelligence, Peters said Netflix was using “AI-like” techniques to better engage with users, adding that new generative AI techniques could “improve discovery and recommendations” for customers.
Sarandos said the impact generative AI will have on the creative community is “hard to predict.”
“A lot of filmmakers and producers are experimenting with AI right now and we’ll have to wait and see how it develops,” he said. “The focus needs to be on the quality of storytelling.”
