Netflix soars as streamer plots removal of without-ads Basic offering

Source: Netflix

Netflix has turned in better-than-expected growth in the quarter to December, with 13 million new subscribers – growth being fuelled by the success of its crackdown on password sharing.

Netflix also highlighted the success of its Basic with Ads offering, and unveiled plans to phase out its Basic plan without ads in key markets starting with Canada and the UK in Q2.

The streamer has separately announced a more extensive foray into live events and sports with a deal with World Wide Wrestling reportedly valued at US$5 billion.

Global streaming paid memberships now stand at over 260 million, up 12.8% year-on-year.

Revenue – the measurement of success now preferred by the streamer – grew by 12% year-on-year to US$8.8 billion. Operating income was US$1.5 billion, up from US$550 million for the same period last year, though down quarter-on-quarter.

Netflix’s ads membership grew by 70% quarter-over-quarter, with the ads plan now accounting for 40% of new members where it is available.

The streamer said it was “looking to retire our Basic plan in some of our ads countries, starting with Canada and the UK in Q2 and taking it from there”.

Netflix does not intend, however to expand the advertising product to new markets on top of those already launched.

“I would say we have got a ton of work ahead of us on just getting to the level of maturity and impact to the business from the countries that we’re operating in today. I would say, never say never on expanding beyond that, but it’s worth noting that the countries that we are currently operating in represent about 80% of global ad spend. So we’re already working in the spaces where there’s the majority of opportunity. We’ll see in the fullness of time, but I’d say we’ve got years of work ahead of us to take the ads business to the point where it’s a material impact to our general business,” said co-CEO Greg Peters, speaking on the Q4 call, with investor relations chief Spencer Wang fielding analyst questions.

On the importance of the advertising business, where Netflix now has 23 million monthly active users, Peters said that building scale is a key priority this year.

However, he said that Netflix had rejected the idea of making the ad tier the default option for subscribers as Amazon plans to do with its ad tier, adding that Netflix would look to sign up users to the ad tier by making it more attractive.

No interest in linear

Netflix said it would continue to invest in content to fuel future growth, even as others cut back, with a high single digit percentage year over year increase in content amortization expected for 2024.

In its letter to shareholders, the streamer also said that it was “logical to expect further consolidation, particularly among companies with large and declining linear networks” this year, but added that it had no interest in acquiring linear TV assets.

While growth in the fourth quarter was clearly fuelled in part by the success of Netflix’s crackdown on password sharing and take-up of its ‘paid sharing’ offer, Peters said that he did not expect the levelling off of this impact to have an unduly negative impact on the company’s performance this year.

He said that paid sharing was “a more effective engine for translating the entertainment value that we’re creating for our members into revenue” but added that “that engine works on top of, and we see it working on top of, very healthy organic growth”.