Netflix's efforts to grow ad tier in focus as subscriber growth slows
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[July 17, 2024]
By Harshita Mary Varghese
(Reuters) - Netflix likely added the fewest number of subscribers in
five quarters during April-June as sharp gains following a crackdown on
password sharing ebbed and viewer attention moved to summer sporting
events including the Euro soccer tournament.
The company added an estimated 4.82 million subscribers in the second
quarter, according to LSEG data. That would be the lowest additions
since the first quarter of 2023 and about half the 9.3 million it added
in the previous three months.
Still, the streaming giant's efforts to sell a lower-priced ad-supported
tier have yielded strong ad revenue growth. The company's ad revenue is
expected to have more than doubled in the June quarter.
Overall revenue likely rose 16.4% to $9.53 billion, marking the fastest
growth since the second quarter of 2021.
Netflix's original shows such as the historical romance "Bridgerton" and
the limited series "Baby Reindeer" - based on comedian Richard Gadd's
experience with a stalker - topped most-watched charts in the second
quarter, according to Nielsen data.
When it reports second-quarter results on Thursday, investors will
scrutinize the streaming giant's efforts to expand its lower-priced plan
with advertising and look for updates on new growth drivers.
In May, the company said its ad-supported tier reached 40 million
monthly active users across the globe and accounted for 40% of all
sign-ups in the countries it was available, up from 23 million in
January.
The ad push has resonated with investors. For the year, Netflix's stock
is up nearly 35%, compared with a return of about 19% on the S&P 500
index.
Seasonally, viewership during summer months for Netflix and its rivals
such as Disney+ also takes a hit as people travel. This year, the
Olympic Games that begin on July 26 are also expected to draw some
viewers away from Netflix, according to analysts.
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A man stands next to a logo of Netflix during an event in Mumbai,
India, February 29, 2024. REUTERS/Francis Mascarenhas/File Photo
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After investing heavily in originals, brokerage MoffettNathanson
noted Netflix is also able to drive viewership with its competitors'
content. Eighteen of the top 20 streamed titles were acquired shows,
such as "NCIS" or "Grey's Anatomy," it noted.
Netflix has also announced bundling partnerships. Comcast is
offering Netflix with its Peacock streaming service and Apple TV+
for its Xfinity internet and TV customers.
Netflix is also hosting more live content, including its deal to
stream two National Football League games on Christmas Day, to
create advertiser-friendly events.
"More live-event announcements will ensue as the company looks to
improve its ad-supported time spent, amid an industry-wide reduction
in scripted content production," Ross Benes, senior analyst at
Emarketer, said.
To drive the next phase of growth, Netflix announced plans in May to
build an in-house ad technology platform that will offer marketers
more ways to buy commercials and measure their performance. It
initially leaned on Microsoft to build the backbone of the ad tier.
"Despite this progress, we continue to view advertising as a longer
term story and do not expect a material revenue contribution until
2025," BofA Global Research analyst Jessica Reif Ehrlich said in a
note on Monday.
(Reporting by Harshita Mary Varghese in Bengaluru and Dawn
Chmielewski in Los Angeles; Editing by Sayantani Ghosh and Shounak
Dasgupta)
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