Netflix added millions of subscribers in the second quarter and saw solid revenue growth, the company said Wednesday in a well-earned earnings report that comes at a time when the entertainment industry is dealing with a double whammy driven by the economics of streaming.
Netflix added 5.9 million subscribers, bringing its global total to 238 million. Its revenue rose 3 percent from the same period last year to $8.2 billion, and the company also said it posted a profit of $1.5 billion for the quarter, the same as last year.
These results were attributed to two policies that were introduced last year after Netflix reported its first subscriber loss in 10 years: a moratorium on password sharing and a relatively new advertising tier.
The company said there has been little opposition to its password sharing crackdown. It said that in every region where its service was available, revenue was now higher than before the sharing restrictions came into force and that new subscriptions already exceeded cancellations.
The new advertising tier that Netflix introduced in November is still a small component of the company’s business, but Netflix said it believes it will continue to grow. Membership numbers for its ad-supported tier have doubled from the first quarter.
“While we have made steady progress this year, we have more work to do to accelerate our growth again,” the company wrote in its letter to shareholders. “We are focused on: creating a steady drumbeat of must-see shows and movies; improving monetization; enhancing the enjoyment of our sports; And investing in improving our service to members.”
Comcast, Warner Bros. Discovery, Paramount Global and Disney will all report earnings in the coming weeks. But the optics are particularly complicated for Netflix. Netflix has faced considerable criticism over the strike, primarily from writers who say the economics of the streaming age have worsened their working conditions and hurt their overall compensation. The company had already drawn flak from angry shareholders last month, when they voted to reject lucrative pay packages for the company’s top executives.
Netflix had little to say about the strikes, except that it had reduced the total amount of cash it planned to spend on content this year because of “the production backlog and the ongoing WGA and SAG-AFTRA strikes,” referring to the writers’ and actors’ unions. It acknowledged that its free cash flow expectations from 2023 to 2024 “could create some wiggle room” because there was no guarantee when production on films and series would resume.
Some of Netflix’s productions managed to wrap up before the actors’ strike began last week. Other notable series such as “Big Mouth,” “Cobra Kai” and “Stranger Things” were set to begin production but were shelved due to unfinished scripts. In the case of “Stranger Things”, series creators Matt and Ross Duffer decided to stop filming because they could not continue writing on set.
“The writing doesn’t stop when the filming starts,” they wrote on Twitter in early May.
The company has already seen some benefits from the strike. Last month, Netflix revealed it would license original HBO shows from WarnerMedia, including “Insecure,” “Band of Brothers,” “The Pacific,” “Six Feet Under” and “Ballers.”
With subscriber numbers rising and profits holding steady, analysts have expressed enthusiasm for the changes Netflix has made to its business.
“Netflix’s quarterly results showed that the streaming company has a clear path to accelerate both revenue and profit growth, and they’re executing it well,” said senior analyst Jesse Cohen. wrote a report on Investing.com. He cautioned that maintaining the pace of growth would be challenging “in the face of the saturation of the streaming industry and the variety of different options available, and the fact that pricing is not significantly lower than the competition.”
There is also concern for some analysts that the short-term gains the company is likely to make due to the strikes could become a problem going forward. “In the longer term, however, the strikes could create a scenario of massive churn and lower advertising revenue for streaming companies,” said Scott Purdy, US national media industry leader at KPMG.
But others are optimistic about Netflix’s advertising business, which is still in its early stages.
“They have everything advertisers want,” said Jessica Reif Ehrlich, a Bank of America analyst. “They have reach, they have scale, they have premium video content. They have been very creative and have come up with some very innovative offers, like offering advertisers to feature in the top 10 weekly shows. So its reach is almost guaranteed.”
Netflix also announced Wednesday that it has removed its $9.99 ad-free “Basic” plan in the United States and Britain. Customers who subscribe to this plan can keep it, but new customers must choose either the ad-supported plan for $6.99 per month, or one of two ad-free options that cost either $15.49 or $19.99 per month.
Unlike traditional entertainment companies, whose stock prices have seen a decline since the writers’ strike began in May, Netflix shares are up nearly 50 percent, reaching $477.59 at market close on Wednesday.