You may have missed it in the Netflix epic, but the streaming veteran started its hit saga with DVD rentals by mail. This historic service, and revolutionary when it was launched twenty-five years ago, will cease by September, the company announced on Tuesday, April 18, in an earnings press release.
"Our goal has always been to provide the best service to our members, but it has become very complicated with the decrease in this activity", explains Netflix. The DVD rental service, which had more than sixteen million subscribers in the United States, has steadily declined over the past decade and generated just $145.7 million ($133 million). euros) of revenue in 2022.
For the first quarter of 2023, the Californian company published results with no big surprises with a slight increase in turnover over one year, to 8.16 billion dollars, and a net profit of 1.3 billion dollars (–18%).
Netflix, which now has 232.5 million subscribers, has set out to convince the market that its transition to more varied and more finely calibrated subscriptions will be profitable in the long term. According to Insider Intelligence analyst Paul Verna, the platform gained fewer subscribers than the market expected in the first three months of the year – 1.75 million instead of 2.2 million.
The subscription with advertising pays more
After the pandemic euphoria for digital platforms, Netflix has had a very difficult 2022, pushing company executives to focus more on diversifying revenue streams than growing users. In November, they launched a new cheaper subscription, with advertising.
The Californian group has found that the subscription with advertising earns it more in the United States than the standard subscription. "Interest in this new formula is exceeding our expectations," Netflix said in its earnings release, "and we are seeing very few existing subscribers switch" to this lower-cost offering.
But “it seems that the implementation is very slow, comments, for his part, Jamie Lumley, analyst at Third Bridge. “Our experts expect 10 million to 20 million advertising subscriptions taken out per year, instead of the initial ambition of 40 million. »
Netflix also wants to force users to pay to add profiles to their account, instead of sharing their password for free. This new approach has taken a bit of a delay – it will only arrive this quarter in most countries, including the United States. But testing and deployment in Latin America and more recently in Canada are conclusive, according to Greg Peters, the company's co-CEO.
“At first there are cancellations. And then people who were using borrowed credentials create their own accounts and add profiles, and we regain traction in terms of subscriptions and revenue,” he told an analyst conference.
"Second Screen" Phenomenon
In the end, the two initiatives "face obstacles and will take time to deploy on a large scale", judges Paul Verna. Insider Intelligence estimates that Netflix will generate $770 million in advertising revenue in the United States this year, and more than $1 billion in 2024.
The Disney platform also added a new formula with advertising at the end of the year, but according to the research firm, competition is also played out, and above all, with other entertainment services. In March, Insider Intelligence predicted that in 2024 adult American users of TikTok will spend more than 58 minutes a day on average, just behind Netflix (62 minutes), and far ahead of YouTube (48.7 minutes).
Analysts also referred to the “second screen” phenomenon: “Viewers are often on TikTok while Netflix is playing in the background. Advertisers considering buying advertising on Netflix should be aware that some viewers may be distracted to the point of dropping their streaming schedule,” they noted.
Spencer Neumann, the company's chief financial officer, said in January that he hoped advertising would quickly make up 10% of revenue to start with, and "much more after that."
