Shawn Lim
Oct 19, 2023

Netflix posts US$1.9 billion operating income for Q3 2023, up 25% from this time last year

Right on par with Wall Street estimates, the streaming giant also garnered nearly 9 million new paid subscribers. However the generation of ad revenues continues to be a challenge.

Netflix posts US$1.9 billion operating income for Q3 2023, up 25% from this time last year

Netflix has announced a 9% year-over-year increase in average paid memberships, with 8.8 million new paid subscribers joining the platform in the third-quarter of 2023, following the release of its Q3 2023 earnings.

This growth is attributed to the roll-out of paid sharing, robust programming, and the global expansion of streaming services. The company now boasts a global subscriber base of 247 million, with more than 70% residing outside the United States. 

The streaming giant posted a revenue of US$8.54 billion for the third quarter, slightly above their forecast, despite the ongoing Writers Guild of America (WGA) strike. 

This was mainly due to higher-than-expected member growth. The operating income for the quarter was US$1.9 billion, up 25% year-over-year. The results come in line with Wall Street estimates which had been for US$8.5 billion in revenue and an operating income of US$1.9 billion for Q3 2023.

While it has introduced an ad-tier, ads are not a significant revenue contributor for the company in 2023 yet. Netflix said it is bullish about the long-term prospects in the US$180 billion advertising market, excluding China and Russia.  

The focus is on increasing ad membership, which saw nearly 70% quarter-on-quarter growth and makes up about 30% of new sign-ups in the 12 countries where it's available. This growth is attributed to enhanced features and the discontinuation of the 'Basic' plan in certain countries, which has led to increased adoption of ad-supported and 'Standard' plans. 

In the meantime, Netflix is innovating its ad formats to offer value to brands. They have initiated title sponsorships and are planning to introduce a new ad product for binge-watchers next year. The company is also investing in its sales team and technical infrastructure to augment its capabilities. 

For example, Netflix recently launched title sponsorships with Frito Lay’s Smartfood for the series 'Love is Blind'.

Brands like T-Mobile, Nespresso and others will be presenting sponsors for 'The Netflix Cup', the platform's first-ever live sports event featuring athletes from 'Formula 1: Drive to Survive' and 'Full Swing', which starts from14 November.

The platform recently replaced its president of worldwide advertising Jeremi Gorman after less than a year in the role. Gorman will be replaced by Amy Reinhard, currently VP of studio operations at Netflix, who has a background in TV distribution. Reinard joined Netflix in 2016 as VP of content acquisition. 

Netflix has also increased the price of its premium ad-free plan in the US by US$3, taking it to US$22.99 per month. 

Similar price hikes were observed in Britain and France, where the premium plan now costs around US$22 (£18). According to the company, these price adjustments were part of its strategy to balance its growing content and operational costs 

“Netflix's subscriber additions are largely attributable to password sharing restrictions.  To limit churn, it's expanding its video game efforts. To increase ARPUs (average revenues per user) and convert freeloaders, it's incentivising more users to adopt ad plans,” said Insider Intelligence principal analyst Ross Benes. 

“Due to its large international presence, Netflix is positioned better than most entertainment companies in plugging programming gaps from the writers' and actors' strikes. However, Hollywood's shutdown has been so prolonged that even Netflix will reorient its content production strategy in upcoming years. With original US productions delayed and other TV/streaming companies no longer holding exclusive titles with vise grips, expect Netflix to revert to its past when many of its biggest shows were licensed." 

Netflix is projecting its revenue to rise to US$8.7 billion for Q4 2023, with a fall of net income to US$956 million. 

Source:
Campaign Asia

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