May 25, 2022

Last week, Disney announced plans to introduce an ad-supported subscription tier for its Disney+ streaming service, but Netflix says a similar option for its own subscribers is not currently being considered. Speaking at the Morgan Stanley Technology, Media and Telecom conference this week, Netflix CFO Spencer Newman explained that Netflix doesn’t mind ads per se, relying on an ad-supported model, “that’s not what we have in mind.”

The question facing the CEO was whether Netflix could consider using ads as a way to lower the initial price of its services. This could help Netflix compete as it tries to establish itself in more global markets, including more price-sensitive ones like India, where Netflix recently cut prices for its members.

But Newman defended the streamer’s current subscription model, saying that Netflix is ​​”focused on optimizing long-term revenue…and we want to do it in a way that’s a great experience for our members.”

The main idea here seems to be that showing ads can help lower the cost of a subscription, which in turn can bring in more customers, but can also affect the end user experience. Of course, the CFO was a little on the defensive in case Netflix’s plans ever changed in this regard, saying that if the company found a way to make games in the ad space, it would still be a great user experience. fit the purpose. So maybe it will. “Never say never,” he said.

“Right now, we think we have a great modeling and subscription business that is doing well all over the world,” Newman said. “Two years ago we had about $20 billion in sales… now we have $30 billion in sales. All regions of the world are experiencing healthy growth.”

Of course, this omission may not fully reflect the state of Netflix’s operations. Investors are arguing today about whether Netflix should pursue further growth in the short term, even if that means adding ads to its service to drive down prices. And Netflix fell short of Wall Street’s predictions for fourth-quarter 2021 subscriber revenue growth. At the time, the company argued that the downturn was temporary, reflecting the late-quarter launch of some of its most anticipated shows, such as the second season of the popular Bridgton. But in his shareholder letter, he also acknowledged that increased competition from competing streamers “could affect our marginal growth.”

Today, Netflix faces a host of new competitors, including Disney+, HBO Max, Paramount+ and NBCU’s Peacock, as well as older competitors like Hulu and Prime Video.

Paramount+ and Peacock launched with ad-supported options. Hulu offers ad-free and ad-free plans. And last year, HBO Max launched an ad-supported subscription. Now on board Disney+. This leaves Netflix almost alone among the top streamers without a cheap, ad-laden subscription. And while Amazon Prime Video doesn’t show ads, it’s also part of a completely different business model. Prime Video is just part of a much larger, more expensive subscription service that offers many other benefits, including Amazon’s faster shipping.

Newman acknowledged that the competition could at some point affect Netflix’s attitude towards advertising.

“This is not in our plans, but others are learning from it. Therefore, it is difficult for us to ignore the fact that others are doing it, ”he admitted. But for now, it doesn’t mean anything to us.

During the conference, the CFO also spoke about other aspects of Netflix’s operations. He said that Netflix’s recent exit from Russia following Russia’s horrific invasion of Ukraine was a decision, mainly due to the “real human suffering” that occurred during the war. But from a business standpoint, sanctions, regulatory and payment issues in the country have also made it hard for Opportunity to operate. At the same time, Russia accounts for less than 1% of Netflix’s revenue.

The directors also briefly asked about Netflix’s booming gaming business, which Newman said is still in its infancy. The first 12 months focused on “just getting connection rights” in terms of the infrastructure to host and distribute the game on the App Store worldwide. The company is now working to find out what games look like in terms of user retention and hours played, as well as how users rate games compared to movies and TV.

He said Netflix has already released about 14 games on the service, but expects “many of them” by the end of the year, indicating the company has plans to release new ones quickly.

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