Netflix adds 9 million subscribers in third quarter
By Nicole Sperling
Netflix added 9 million subscribers in the third quarter and saw a year-over-year increase in revenue despite strikes by Hollywood writers and actors that brought the entertainment industry largely to a standstill.
Netflix’s revenue hit $8.5 billion in the quarter, the streaming company said in an earnings announcement on Wednesday, up 8% from a year earlier. The increase was credited to better-than-expected growth in subscribers to 247 million worldwide.
The company’s net income was $1.6 billion, up nearly 20% from a year earlier. Netflix is expected to spend some $13 billion on content this year, down from $17 billion, because of the writers’ strike, which recently concluded, and the actors’ strike, which continues after talks recently broke off.
Ted Sarandos, co-chair of Netflix, said in the earnings conference call that Netflix was “incredibly and totally committed to ending this strike,” pointing to how it has hurt the industry and the economy at large. But he added that a new demand last week from the actors’ guild — what he called “a subscriber levy that is unrelated to viewing or success” — “really broke our momentum.”
Netflix also said it was raising the monthly price for its premium ad-free service in the United States, to $22.99 from $19.99, and for its basic plan, which is available only to existing subscribers. It will also raise prices in Britain and France.
The premium service can be used on four devices at a time. The monthly price for the standard ad-free service, which can be used on two devices at once, will stay at $15.49. The basic plan — Netflix’s lowest without advertising — will increase to $11.99 from $9.99.
Analysts attributed the increase to an effort to lure more people to Netflix’s $6.99 service, which includes advertisements and generates additional revenue.
“Yes, raising prices will boost revenue for streaming services in the short term, but overusing this marketing lever isn’t sustainable, as consumers expect value: great content at a fair price,” Mike Proulx, a vice president and research director at Forrester Research, wrote in a report. “Not only are consumers getting no additional value with recent and planned price hikes, they’re, arguably, getting less value.”
Still, with the overall television business contracting because of the rising cost of production and a soft ad market, Netflix may find itself in a strong competitive position. For instance, the original series “One Piece,” an adaptation of a bestselling manga series, was a success in the United States and Japan. And the service found another hit in “Suits,” which aired on the USA Network before ending four years ago.
“We may have increased opportunities to license more hit titles to complement our original programming,” the company said in a letter to shareholders. It is a practice that benefits “our members, as well as rights holders,” the company said, referring to “the new life that success on Netflix can drive.”
Sarandos added that in its deal with HBO, shows that debuted on Netflix, such as “Insecure” and “Ballers,” also “popped into the Top 10 on their streaming service for the first time,” in what he called “the Netflix Effect” because of the size of its subscriber base and its recommendation system.
Netflix said it expected net income to decline in the fourth quarter because of an increase in marketing costs associated with more movies and series being released, including the final season of “The Crown” and Zack Snyder’s big-budget sci-fi fantasy, “Rebel Moon.” Sarandos called the coming quarter “one of its strongest ever” for the film side, highlighting new movies from filmmakers including Snyder, David Fincher, Todd Haynes and Bradley Cooper.
Netflix said its ad-tier memberships were up almost 70%. In addition, it said 30% of its new subscriptions in the 12 countries where the ad tier was available were for the less expensive option. It also said it was having success with its efforts to combat password sharing.
The company recently initiated cuts to its animation department and shut down two animation films in preproduction, according to a Variety report. Now it is clear why: The company announced Wednesday that it had signed a new multiyear agreement with Skydance Animation, currently being run by former Pixar chief John Lasseter. Skydance, formerly at Apple, will now develop and produce animated movies directly for Netflix beginning in 2024.
“We’re thrilled with our success of animated features, but it’s a very long cycle of development and production,” said Sarandos, adding that no single company has ever really successfully launched more than two animated features in a single year. “This deal helps us to complement the work we are doing.”