Netflix’s upcoming earnings report is set to highlight the company’s strategy for maintaining subscriber growth after experiencing substantial increases over the previous two quarters. The spotlight has largely been on the impact of Netflix’s global crackdown on password sharing, which has significantly contributed to the company’s recent growth spurt. In the second half of 2023, approximately 22 million new users subscribed, marking the strongest growth since the pandemic. However, analysts warn that the surge from tightening password-sharing policies may start to diminish, directing attention to other strategic efforts such as the introduction of an ad-supported subscription tier and an increased focus on sports content.
For the first quarter ended in March, expectations set by LSEG data suggest that Netflix is likely to add about 5 million subscribers, a figure nearly triple that of the same period last year but still a slowdown compared to the latter part of 2023. Notably, Netflix originals like “Fool Me Once” and “Griselda” have topped streaming charts in the U.S., with popular licensed content like “Grey’s Anatomy” also drawing significant viewership. The second quarter is projected to see an addition of 3.7 million subscribers, indicating a continued, albeit slower, growth trajectory.
The ad-supported tier, introduced across 12 countries, has quickly grown to account for 30% of all new Netflix sign-ups, driven by its lower price point compared to commercial-free plans. After recent price hikes for its other subscription options, analysts from Wedbush Securities suggest that the shift may have encouraged more basic tier subscribers to opt for the cheaper ad-supported option, simultaneously boosting the average revenue per user (ARPU) from those selecting premium tiers. This strategy not only helps to limit subscriber churn but also presents significant potential for expanding advertising revenues moving forward.
On the content front, Netflix has announced plans to invest up to $17 billion in 2024, maintaining its level of spending in a strategic and judicious manner despite rivals scaling back to boost profitability. This investment is expected to continue attracting subscribers, especially as Netflix’s streaming competitors in the U.S. appear increasingly open to selling their previously exclusive content to Netflix, which should help in reducing churn. Moreover, Netflix’s recent venture into sports entertainment, marked by a partnership with World Wrestling Entertainment for the rights to broadcast the weekly program “Raw,” illustrates its approach to integrating engaging sports-related content without the exorbitant costs typically associated with traditional sports broadcasting rights.
