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Netflix’s subscriber growth is picking up again, an early sign that a shift to include ads in its cheaper version of the video streaming service is helping to fend off tougher competition and attract cost-conscious subscribers who are struggling with inflation.
The company on Thursday announced the benefits of 7.7 million subscribers during the October-December period, which includes the debut of an ad-supported option for $7 a month – less than half the price of the most popular commercial free plan. The performance followed a subscriber gain that topped analysts’ expectations during the July-September period that followed Netflix’s double-digit subscriber loss.
After regaining momentum, Netflix also announced that co-founder Reed Hastings will relinquish the title of co-CEO, completing a transition that began in July 2020 with the appointment of program chairman, Ted Sarandos, as co-CEO. Greg Peters, CEO of Netflix, will join Sarandos as co-CEO while Hastings becomes executive chairman.
Hastings, 62, has been Netflix’s CEO for more than 20 years after taking over the role from friend and company co-founder Marc Randolph in the late 1990s.
Losing Hastings as co-CEO “leaves some big shoes for me and Greg to fill,” Sarandos said during a conference call late Thursday. “Luckily, we have four legs to do it.”
As he handed over the CEO baton, Hastings said Sarandos and Peters were “more than ready” to succeed him. “He has tremendous talent and gifts,” Hastings said during a conference call. “Frankly, more than that, he has led the company.”
new strategy
Insider Intelligence analyst Paul Verna described the new leadership as another step in the evolution of Netflix from its origins as a technology company led by a mathematician in Hastings to an entertainment service led by Sarandos, who has long negotiated with Hollywood studios, and Peters, who oversaw expansion into advertising. .
“The current shift is putting ads in the middle of the image, alongside the content,” Verna said.
The rise in Netflix subscribers did not boost profits, largely because the strong dollar weighed on international results. The Los Gatos, California-based company earned $55.3 million, or 12 cents per share, during the fourth quarter, down 91 percent from the same period a year earlier. Revenue rose 2 percent from a year earlier to $7.85 billion US, a modest gain that suggests some active customers may downgrade from more expensive plans to cheaper ad-supported options.
One in three Canadians have canceled their subscription to a streaming service in the past six months, according to a survey by the Angus Reid Institute.
The earnings fell below the predictions of analysts who shape investors’ expectations. But investors appear to be more focused on higher customer benefits than projections. Netflix shares rose nearly 7 percent in pre-market trading Friday to more than $337 a share. The stock price has more than doubled from a five-year low of $162.71 reached last May, but is still far from an all-time high of nearly $701 in November 2021.
Last year’s subscriber decline, unprecedented since Netflix split its streaming and DVD-by-mail services in 2011, prompted management to embrace advertising for the first time. The company is now gearing up to crack down on the massive password sharing that has enabled an estimated 100 million people worldwide to watch popular shows such as Crown and Stranger Things free
Buoyed by the uptick of the holiday season, Netflix now has nearly 231 million subscribers worldwide — more than its rivals in the increasingly crowded video streaming competition that includes Amazon, Hulu, Google’s YouTube, Walt Disney Co. and Apple, the richest company in the world.
Now that consumers have so many choices with only so much discretionary income, Netflix has admitted it will be difficult to attract more subscribers as it has been doing. The growth peaked during the first phase of the pandemic when video streaming services added more than 36 million subscribers during 2020, while most people were buried at home. By comparison, Netflix took in less than 9 million subscribers for all of last year.
The weakness prompted Netflix to stop its long-standing practice of projecting the number of subscribers it expects to gain from quarter to quarter, an effort to reduce investor focus on those numbers. However, Netflix is putting more emphasis on revenue and profitability, goals that will be helped by more money from ad sales.
As consumers cut subscriptions and look for alternative ways to consume news and entertainment, free ad-supported streaming television (FAST) services offer an alternative, with the CBC launching its own FAST channel this week.
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