Netflix rebounds in Q3, adds 2.4 million subscribers

Netflix gained momentum in the third quarter of 2022 with the addition of 2.4 million subscribers, which exceeded its forecasts. It is a refreshing break for the streaming giant as it suffered two consecutive years of subscriber loss.
The streamer is bullish about the next quarter. For Q4, it hopes to gain 4.5 million new streaming customers, as against 8.3 million in the previous year quarter.
The streaming company said that its Q3 content slate was especially strong. “In English scripted TV, we kicked off the quarter with Stranger Things S4, which generated 1.35 billion hours viewed - our biggest season of an English-language series ever. This was followed in August by The Sandman (351 million hours viewed), which was loved by fans and critics alike. Near the end of the quarter, we launched season five of fan favorite Cobra Kai (270 million hours viewed) and limited series Monster: The Jeffrey Dahmer Story* (824 million hours viewed) from Ryan Murphy, which is now our second largest English series,” said Netflix in its letter to shareholders.

“After a challenging first half, we believe we’re on a path to reaccelerate growth. The key is pleasing members. It’s why we’ve always focused on winning the competition for viewing every day. When our series and movies excite our members, they tell their friends, and then more people watch, join and stay with us,” said letter.

The streaming giant said that it started its original programming strategy about a decade ago as it anticipated that some competitors would eventually stop licensing their content to Netflix.

“It’s been a huge challenge to build a lifetime of entertainment in just ten years in multiple languages and across so many different genres -
series, films, animation, stand-up and non-fiction. And while we’ve had our share of misses, we’ve managed to create a very broad slate with many great series and films, for whatever your mood ormtastes, from amazing storytellers around the world. Given everything we’ve learned, we’re confident we can deliver even more member value per content investment dollar over time,” said the letter.

Netflix said that BARB (Broadcasters Audience Research Board), the leading audience measurement and video ratings organisation in the UK, is now reporting the share of video viewing for streaming services and broadcast groups in the UK on a monthly basis. “In September, Netflix accounted for 8.2% of viewing, and we have more than 2x the monthly engagement of our next closest streaming competitor.

This reporting is similar to Nielsen’s Gauge, which launched in May 2021 when Netflix accounted for 6% of viewing compared to 7.6% in August 2022. Our hope is that other measurement companies around the world will join Nielsen and BARB to publicly report on both the shift from linear to streaming and the viewing share of relevant entertainment companies.”

Netflix said it is pleased with the progress of its original film initiative. The big-budget action film The Gray Man (254 million hours viewed) reflects the scope of its ambition to create theatrical-quality blockbusters that can reach huge audiences on Netflix: 118 million households (many of which are multi person) if you divide the total hours viewed by the film’s run time of 2 hours and 9 minutes. “But since we’re not limited by the need to optimize for theatrical attendance, we can also produce a wider variety of films that consumers can enjoy. For example, the romantic drama Purple Hearts was a hit among our members with 229 million hours viewed.”

Product and pricing

Last week, Netflix announced that it will be launching an ad-supported subscription plan on November 1 in Canada and Mexico; November 3 in Australia, Brazil, France, Germany, Italy, Japan, Korea, the UK, and the US; and November 10 in Spain. Cumulatively, these 12 markets account for ~$140 billion of brand advertising spend across TV and streaming, or over 75% of the global market.

“To start, we’re keeping it simple by offering one low-priced ad plan – Basic with Ads – at a price that’s 20%-40% below our current starting price. So in the US, for example, Netflix will now start at $6.99 per month (compared to $9.99 today). The Basic with Ads plan will have ~5 minutes of advertising per hour, frequency capping and strong privacy protections,” said the streamer.

The reaction from advertisers, informed the letter, so far has been extremely positive and the company believes that more choice, especially for more price-conscious consumers, will translate into meaningful incremental revenue and operating profit over time. “That said, it’s still very early days and, since we’re keeping our existing plans ad-free, it will take us time to build up our membership base and the associated ad revenue,” the letter stated.