Netflix added millions of subscribers in the second quarter and saw an increase in revenue, the company said Wednesday in a positive earnings report that came as the entertainment industry is facing double strikes, inspired in part by the economics of streaming.
Netflix added 5.9 million subscribers to bring its global total to 238 million. Revenue was up 3 percent to $8.2 billion from the same period last year, and the company also said it made $1.5 billion in profit in the quarter, a similar number to this time last year.
The results were attributed to two policies introduced last year following Netflix’s first reported subscriber loss in 10 years: a crackdown on password sharing and a relatively new level of advertising.
The company said there was little resistance to the crackdown on password sharing. It noted that revenues in every region where the service was available were now higher than they were before the sharing restrictions came into effect, and new subscriptions already exceeded the number of cancellations.
The new level of advertising Netflix introduced in November is still a small part of the company’s business, but Netflix said it believed it would continue to grow. The number of members of the ad-supported tier has doubled since 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 remain focused on: creating a steady drumbeat of must-see shows and movies; improving monetization; increase the enjoyment of our games; and invest to improve our service to members.”
Comcast, Warner Bros. Discovery, Paramount Global and Disney will all report earnings in the coming weeks. But the optics for Netflix are particularly complicated. Netflix has received a lot of vitriol surrounding the strike, mainly from writers who say the streaming-era economy has eroded their working conditions and hurt their overall compensation. The company already faced angry shareholders last month when they voted to reject lucrative compensation packages for the company’s top executives.
Netflix had little to say about the strikes, other than cutting the overall amount of money it planned to spend on content this year due to “timing of production start and the ongoing WGA and SAG-AFTRA strikes” , referring to the unions of writers and actors. It acknowledged that its free cash flow projections from 2023 to 2024 “could create some unevenness” because there was no guarantee when film and series production would resume.
Unlike traditional entertainment companies, which have seen their share prices plummet since the writers’ strike began in May, shares of Netflix were up about 50 percent. But they fell about 9 percent in after-hours trading on Wednesday, perhaps prompted by lower-than-expected revenue and sales forecasts.
On a conference call for investors, Netflix co-chief executive Ted Sarandos did not directly answer how long the strikes could last before the streaming service runs out of new content.
“We are constantly making deals; we are constantly sitting at the table negotiating with actors and producers and everyone in the industry,” Sarandos said. “We were very much hoping to come to an agreement now,” he continued, adding that he grew up in a unionized family.
Mr. Sarandos’ father was an electrician, he said, and he remembered how hard it was for his family when his father went on strike.
Some of Netflix’s productions were finished before the actors’ strike, which began last week. Other notable series such as ‘Big Mouth’, ‘Cobra Kai’ and ‘Stranger Things’ were all set to go into production but were halted due to unfinished scripts. In the case of “Stranger Things,” series creators Matt and Ross Duffer chose to stop filming because they couldn’t continue writing while on set.
“The writing doesn’t stop when the filming begins”, They wrote on Twitter in early May.
The company has already seen some benefits from the strike. Last month, Netflix announced 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 earnings holding steady, analysts are excited about the changes Netflix has made to its business.
“Netflix’s quarterly results showed the streaming company has a clear path to accelerate growth in both revenue and profit, and they’re executing well,” said Jesse Cohen, senior analyst. at Investing.com, wrote in a report. He did caution that it would be challenging to maintain the pace of growth in light of “the saturation of the streaming industry and the variety of options available, and the fact that prices are not necessarily significantly lower than the competition .”
Also of concern to some analysts is the fact that the short-term gains the company is likely to make as a result of the strikes could become a problem if they persist. “In the long run, however, the strikes could create a scenario of massive churn and lower ad revenue for streaming companies,” said Scott Purdy, U.S. media industry leader at KPMG.
But others are optimistic about Netflix’s advertising business, which is still in its infancy.
“They have everything advertisers want,” says Jessica Reif Ehrlich, a Bank of America analyst. “They have reach, they have scale, they have premium video content. They’ve been very creative and come up with some very innovative offers like offering advertisers to be in the top 10 weekly shows. So the range is almost guaranteed.”
Netflix also announced Wednesday that it had removed its $9.99 ad-free “Basic” subscription in the United States and Great Britain. Consumers who subscribe to this plan can keep it, but new subscribers must choose the ad-supported plan at $6.99 per month, or one of two ad-free options that cost $15.49 or $19.99 per month cost.
