Netflix Is Expected To Have The Slowest Revenue Growth As Its Ad Plan Struggles To Gain Traction

Netflix Inc is expected to report its slowest quarterly revenue growth on Thursday as its ad-supported plan struggles to attract customers in a crowded U.S. market, putting pressure on the company to reduce content spending this year.

The streaming pioneer has been hit hard by dwindling consumer spending, rising production costs, and increased competition from Disney+ and Amazon Prime.

It had staked its hopes on the launch of the ad-supported tier, but analysts say there has been no surge in subscriptions.

The company is expected to have added 4.5 million subscribers in the fourth quarter, the lowest number since 2014. It added 8.3 million subscribers in the previous year.

According to analysts, the $6.99 per month ad-supported plan does not include access to all titles and is not inexpensive enough to attract a significant number of customers in the United States and Canada.

“Looking at the saturation of the market and the variety of different options available, and the fact that the pricing is not necessarily significantly below the competition, there are some challenges in attaining those subscriber targets,” said Jamie Lumley, an analyst at Third Bridge.

This is likely to focus attention on Netflix’s aggressive content spending, which finance chief Spencer Neumann predicted in July would total around $17 billion per year for the next few years.

“When debt was cheap, you could go and borrow a lot of money and invest that in content,” said Shahid Khan, partner and global head of media and entertainment at Arthur D. Little.

“Given current interest rates, Netflix will have to be very selective about green-lighting content and how they would finance it.”

In comparison, rival Walt Disney Co anticipates fiscal 2023 content spending in the low $30 billion range, while Paramount Global anticipates spending of less than $10 billion. Disney does not break down content spending by streaming and other divisions.

Due to the fallout from the Russia-Ukraine conflict and a weakening economy, Netflix suffered significant subscriber losses in the first six months of 2022, forcing the streaming pioneer to turn to advertising, a move it had long resisted.

It resumed subscriber growth in the third quarter, but its stock, which had been an investor favourite during its years of rapid growth, ended the year down more than 50%.

According to Refinitiv, the company’s revenue in the October-December quarter is expected to have increased by only 1.7% to $7.84 billion. That would be the lowest price since the company went public in 2002.

“As overall streaming growth flattens out, most of the more mature streaming platforms have leveled off as well,” MoffettNathanson said, adding that Netflix’s reach fell by 200 basis points in the quarter.

Nonetheless, some analysts believe that the ad-supported strategy will pay off in the long run, particularly in developing markets with lower spending power.

(Adapted from CNBCTV18.com)



Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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