Burning Dimension (ID: chaintruth) original
Author | Tao Tao
Edit | Cao Yang
Netflix (NFLX.US) delivered a mixed report card in the first quarter as the low-cost package boosted subscriber growth and cracked down on account sharing.
After market hours on April 18, local time, Netflix released its financial report for the first quarter of 2023. According to the financial report, the company's operating income was 8.16 billion US dollars (about 56.12 billion yuan), a year-on-year increase of 3.7%, slightly lower than analysts' expectations of 8.18 billion US dollars; net profit was 1.305 billion US dollars, down 18% from 1.597 billion US dollars in the same period last year; Diluted earnings per share (EPS) were $2.88, down 18.4% year-over-year and above analysts' expectations of $2.86.
Core user metrics show that although Netflix added 1.75 million new paid subscribers worldwide in the quarter, it fell short of analysts' expectations for a growth of 2 million. In terms of geographical division, North America added 100,000 people in the first quarter, a year-on-year decrease of 640,000; Europe, the Middle East and Africa increased by 640,000, down 300,000 year-on-year; Asia-Pacific added 1.46 million, compared with 1.09 million last year; The number of paying subscribers in Latin America decreased by 450,000, up from 350,000 in the same period last year.
In this regard, Netflix mentioned in its financial report, "The growth of paid subscribers in many regions in the first quarter benefited from the launch of low-cost packages and ad tiering packages; However, the crackdown on account password sharing caused pain, and users in Latin America have not increased but decreased. ”
The low-cost package in Netflix's mouth refers to the ad-free discount package launched by Netflix in more than 100 countries such as the Middle East and Africa in February this year, and the price of the package has been reduced by up to 60%. Secondly, the package with patch advertising was launched in 12 countries including the United States, Canada, and South Korea, charging only 6.99 US dollars / month and the definition was 720P. It's $3 per month less than the previous lowest-priced, ad-free plan in the US, and the definition is also higher than the latter's 480P.
Large-scale promotions and price cuts have naturally brought new growth points to Netflix, which originally reached the bottleneck of user growth. Netflix mentioned in its earnings report that "the launch of the ad-free package in India in 2021 increased its user engagement by 30% year-on-year in 2022." ”
Shared password accounts refer to premium accounts that Netflix can use to share with family members. According to previous Netflix investigations, these premium accounts have been repeatedly rented by users outside their family members, causing them huge losses. Recently, Netflix launched pilot measures for shared user rectification in Latin America, Canada, New Zealand and other places, which directly led to Latin America becoming the only region with a decline in paid subscribers this quarter.
In this regard, Internet observer Zhang Shule said, "Netflix's initiative to account sharing, in the long run, not only faces the needs of users, but also protects its own rights and interests, and at the same time unlocks the bottleneck of user growth." ”
In addition to the above measures, Netflix is also "slimming" in synchronization. A few days ago, Netflix said it would restructure its film division and cut spending on small and medium-cost films and documentaries.
"This is because driven by explosive models, Netflix concentrates its superior forces to break through the head, which can stimulate the demand of users to pay, and long-tail content and vertical niche content will inevitably give way in the current strategy." Zhang Shule analyzed.
It is not difficult to see that this "middle-aged streaming media" seems to have anchored the correct strategic goal of fattening and gaining muscle, but its sowing has not yet reached the time of harvest.
01
"Dark Glory" brings "glory"
Of the 1.75 million paid subscribers growth in the quarter, Asia-Pacific added 1.46 million, accounting for more than eighty percent. The reason is inseparable from the traffic blessing brought by the launch of its popular Korean drama "Dark Glory Season 2".
"Dark Glory Season 2 started, and in order to watch it as soon as possible, I saw it at two thirty in the morning for several days in a row." The post-90s girl Yuanzi said to Ran Dimension that watching Netflix dramas has a hearty feeling, "The first season is also very exciting, but it is a little depressing to watch, and the second season has been revenge, very high-energy, more good than the first season." ”
Picture/"Dark Glory 2" popularity data Source/Maoyan Professional Edition Screenshot of the burning dimension
Madoko said that she had also chased Netflix's "Alice on the Dying Occasion" in one night, "The plot is intertwined, and I like this sense of escape room and battle royale." ”
Also moved by "Dark Glory Season 2" is also British and American drama lovers and loyal Netflix viewer Far, "I think this revenge drama is really enjoyable to watch, and after watching it, I have a feeling of 'real-world grievances have been extended in the show'." ”
Far told Ran Dimension that he has always favored different types of series on Netflix, "in addition to the fact that Netflix series often give a gripping texture, it is also because it has a 'local character'." For example, when I watched the Korean drama "Dark Glory" series, the Taiwanese drama "The First Lantern", and the Japanese drama "Alice in the Land of Death", I could feel very strong local characteristics, and the context restoration was also very good. It may be because Netflix hires local directors and screenwriters, so it often does not feel that it is an overseas production company behind it. ”
In fact, Netflix has always had little involvement in the creation of overseas series, and the main support is to spend a lot of money. This is also the fundamental reason why Netflix has frequently released global blockbuster series in recent years.
According to Netease Entertainment, Masahiko Minami, chairman of Japanese animation production company Bone Society, once said that during the production of "B: The Beginning", Netflix gave them full trust and never "stopped". "Kingdom" director Kim Sung-hoon has also said, "Netflix provides 'unparalleled creative freedom', generally only feedback 'what the Western cultural community will think' rather than 'let you change it like this'." ”
In fact, spending heavily on series is Netflix's usual way of doing things.
Public data shows that Netflix set a new standard for Netflix as early as 2013 when it created the TV series "House of Cards" - the quality of series should be proportional to the cost of production. As a result, the production cost of the first season of "House of Cards" was as high as $100 million. In addition, the single-volume version of the popular "Stranger Things" in recent years has also reached 8 million US dollars; The average cost of "The Crown" reached $13 million per episode.
At the same time, the experience of industrial production processes accumulated over the years is also the reason why Netflix frequently exports excellent works.
Gengen, a young director who has studied in the United States, introduced Ran Yuan, "Netflix's works are generally composed of one director of the first episode and multiple episode directors. Among them, the director of the first episode will be a director who has experience directing long-form films. At the same time, he worked with the executive producer and creator (equivalent to screenwriter + producer) to build the 'overall skeleton' of the series. After that, the episode director goes to 'fill the meat'. After each season, the content of the episodes will be adjusted according to the feedback from the audience. ”
Origin further analyzed, "The advantages of this form are many. First of all, the episode director regularly and quantitatively completes his own tasks, and the progress of the episode is relatively controllable. Second, screenwriters have more autonomy than the 'director-centric' model. Finally, the choreographer can adjust the direction in time based on audience feedback. ”
02
The price reduction is very fragrant, and the effect of cracking down on shared accounts has not been shown
"Content is king" has always been the foundation for the healthy growth of streaming media, but the fact that there are many popular models does not mean that users will continue to grow.
In the first quarter of 2022, Netflix's earnings report showed an "epic rollover", the number of subscribers decreased, and Netflix fell into an unprecedented growth bottleneck. At that time, Li Dongdong, the founder of Geek Movies, said, "There are two main reasons for this result, first, Netflix's price is the most expensive among mainstream streaming platforms and lacks competitiveness; Second, Netflix has bred account-sharing issues during its previous barbaric growth, which has constrained the growth of new subscribers around the world. ”
Of course, Netflix also recognized these two problems last year, so in the second half of last year launched discount packages and price reduction packages with ads in some regions, and implemented measures to combat account sharing in some regions this year.
Source/Visual China
Before the price cut, Netflix was $9.99/month for a base subscription in the U.S. and $19.99/month for premium membership. But in November 2022, Netflix launched a low-cost package with ads for only $6.99/month for 12 mid-to-high-end markets, including the United States, the United Kingdom, Canada, Japan, and South Korea, which is already lower than Disney's price of $7.99/month. In addition, in February this year, Netflix also provided pure price reduction services without ads in 116 countries and regions, including Afghanistan, Egypt, and Thailand.
"This allows Netflix to compete with Disney, Amazon and others for the sinking market outside of the current high-end market." In this regard, Internet analyst Rocky said.
The price reduction strategy has also made Netflix effective. Netflix CFO Spencer Newman said at the earnings sharing session, "The company's price reduction in the Indian market in November 2021 was 20-60%, which led to a 30% increase in user engagement and a rapid increase in the number of paying subscribers. Revenue growth in India also increased from 19% in the previous year to 24% last year (excluding currency changes). Hopefully, the company will be as successful as India in other markets. ”
In addition, Netflix's crackdown on shared accounts also contributed to revenue growth in the quarter. However, the results are not the same in developed countries and regions as in developing countries.
Specifically, Netflix piloted 4 countries in Canada, Portugal, Spain and New Zealand, requiring the main account to set up a "primary location", with up to two sub-accounts and additional fees. In terms of sub-account surcharges, it is 7.99 CAD/month in Canada, S$7.99/month in New Zealand, €3.99/month in Portugal and €5.99/month in Spain.
In Canada, for example, the number of paid memberships has increased at the same time as revenue growth has accelerated. In the earnings conference, Netflix also specifically mentioned that "the Canadian pilot has good reference value for the United States, and the company will expand the shared account rectification to more countries including the United States in the second quarter." ”
However, in Latin America, Netflix uses IP positioning and other methods to crack down on illegal use of accounts by non-family users, and does not provide a plan for additional fees. This directly led to a 450,000 fewer subscribers in Latin America and the only region where paid subscribers declined this quarter.
"The poor feedback from users in Latin America may be due to the lack of additional measures to attract rental accounts into regular sub-accounts in addition to the crackdown. On the other hand, it may also be due to the limited spending power in Latin America, which makes users more sensitive to price changes. Rocky said to the burning dimension.
Therefore, in the earnings conference, Netflix pointed out that "in the next crackdown on shared accounts, more consideration will be given to user experience, and I believe that users who have canceled subscriptions in Latin America and other markets will return in the future." ”
Zhang Shule also said, "Netflix's approach can not only protect its own rights and interests, unlock the bottleneck of member growth, but also protect the rights and interests of most Netflix members, and in the long run, it may enhance user stickiness." ”
03
Netflix continues to make efforts
In the quarter, Netflix's shares fell 3.4% to $322.73 per share on April 19 after reporting results after market hours on April 18, despite the failure of a soft landing in Latin America to combat shared account measures.
However, in the past 3 months, 94% of analysts have rated Netflix as buy or hold. It can be seen that in the long run, the core strategy that Netflix is currently adopting is still generally recognized by the market.
Figure: 33 analysts rating Netflix stock price in the past three months Source/Futubull Burning Dimension screenshot
A number of analysts also said to Ran Dimension, "In addition to the crackdown on password sharing and the increase in advertising launches, the power on games and large screens, as well as the 'slimming' film department, as well as the concentration of funds on blockbuster works, are all catalysts for Netflix's long-term growth." ”
Following the fourth quarter of last year, Netflix once again mentioned the penetration rate and development space in TV screens in different countries around the world in this quarterly earnings report. Currently, Netflix has a market share of 7-9% in TV use in the US and UK; The market share in Brazil, Mexico and Poland is 2-4%, while the streaming business has a total market share of more than 1/3 of the big screen in the United Kingdom and the United States. Therefore, Netflix believes that after upgrading its service, it can further increase its market share.
Figure: As of the first quarter of 2023, the share of Netflix and other streaming media in the large-screen market in various countries Source/Netflix earnings report Screenshot of the burning dimension
At the same time, games have also been the focus of Netflix's development in the past 3 years, and in the eyes of many users and analysts, its development may do more good than harm.
In November 2021, Netflix entered the mobile game market and has since acquired a number of game studios, including Next Games and Night Studio, mobile developers of The Walking Dead. Last September, Netflix built its first game studio.
In March, Netflix said it was "going to launch an additional 40 games in 2023, bringing the number of games it has by the end of the year to 95." At the same time, Netflix also mentioned that the company currently has 16 games in development and another 70 games in cooperation with third parties.
A few days ago, former Microsoft creative director Staten said in a tweet, "I am very happy to have joined Netflix and will provide ideas for the new triple-A multi-platform game." ”
This is also seen by many industry insiders as an important embodiment of Netflix's attraction of game talent. "If Netflix can do a good job of spin-off content of series on games, it can better open up the IP industry chain." Rocky analyzed.
However, although games can bring new growth space to Netflix, they also run the risk of insufficient overlap with film and television users.
"I love Netflix only because of the series, like Stranger Things, but I don't consume games because I don't like them." Netflix fan Daisy revealed to Burning Dimension.
"If a user likes to follow shows and play games, Netflix's games will help grow membership. Otherwise, the package of film and television packaged games is not friendly to users who only like games, and perhaps the game should be released independently. Daisy added that as of now, Netflix's games have only been released to its members.
Data show that in the fourth quarter of 2022, Netflix's streaming business accounted for 99.54% of revenue, and DVD rental business accounted for less than 0.5%. Therefore, Netflix mentioned in this quarterly earnings report that the company is about to close the DVD rental business that has been in service for 25 years.
Prior to this, on March 31, Netflix also announced that it was restructuring its film division, reducing film production and merging some teams in the future to reduce the output of small and medium-cost films and documentaries. It is reported that Nishimura and Brick, who have been with Netflix for more than a decade, will also leave with the reorganization, the former is the head of the stand-up comedy and original documentary team, and the latter is the vice president of Netflix's film division.
In the eyes of most analysts, Netflix's move to reduce non-mainstream business and vertical content may be of great benefit to the company.
Zhang Shule said, "In the current blockbuster drive, Netflix no longer tries to cover everything, but concentrates its superior forces on breakthroughs in the top explosive content to stimulate users to pay." Conversely, long-tail content and vertical niche content will give way to the current blockbuster strategy, which is an inevitability. ”
"When Netflix achieves a stable output of explosive models, a stable willingness of users to pay, and a breakthrough in the real sense of profit scenarios, long-tail retail investors can be 'resurrected'." Zhang Shule added.
However, despite Netflix's recent strategic and revolutionary moves, it may be in the right direction. However, the measure seeds that have just been "planted" are far from being harvested, and still need to face unknown challenges.
Resources:
《Netflix statistics & facts that define the company’s dominance in 2023》，来源：Comparitech.
*The title image and some of the accompanying pictures are from Visual China.
*In the text, Rocky, Daisy, Yuanzi, and Far, are pseudonyms.
*Disclaimer: Under no circumstances does the information in this article or the opinions expressed constitute investment advice to anyone.