(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 released results on Tuesday with no big surprises with revenue up slightly over one year, to $8.16 billion, and net profit of $1.3 billion ( -18%).
These “fairly tepid numbers do not prove that the company is going to be able to revitalize its business with advertising and paid password sharing”, reacted Paul Verna, analyst at Inside 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.
In November, they launched a new cheaper subscription, with advertising.
“Interest in this new formula is exceeding our expectations,” Netflix said in its earnings release, “and we are seeing very few existing subscribers switching” to this lower-cost offering.
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 looks like the build-up is very slow,” commented Third Bridge analyst Jamie Lumley. “Our experts are expecting 10-20 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 first 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.
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, the 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 a day on average, just behind Netflix (62 minutes), and far ahead of YouTube (48.7 minutes).
Analysts also referred to 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 schedule,” they noted.
Spencer Neumann, the company’s chief financial officer, said in January that he hoped advertising would quickly make up 10% of revenue to start with, and “much more after that.”
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,” the company explained.
