Netflix appears to be in a dominant position in Hollywood’s battle for eyeballs and ad dollars.
So far, Netflix remains one of the only profitable major streaming services, and investors seem to feel good about the company’s prospects: Netflix’s stock is up 36% compared to one year ago, while Disney’s stock fell 10%, and Warner Bros. Discovery’s stock is down 22% over the same period (WBD is CNN’s parent company).
Once considered an upstart disruptor in Hollywood, Netflix has been the top dog in streaming for more than a decade. Last week, Bank of America crowned the streaming service “the king in streaming.”
“It has become increasingly clear that Netflix has won the ‘streaming wars,’” wrote Bank of America media analyst Jessica Reif Ehrlich, pointing to the fact that legacy media companies, like Disney, are now reevaluating the money they’ve poured into their own streaming strategies.
But the question of whether Netflix’s dominance can carry into 2024 remains. The company reports fourth-quarter earnings on Tuesday after the bell, providing key insights into its financial health.
Netflix, which is in a quiet period ahead of earnings, declined CNN’s request for comment.
Here’s what to look out for:
How successful is Netflix’s foray into advertising?
Only five years ago, Netflix co-founder Reed Hastings blasted advertising as “exploiting users.” Since then, Netflix has changed its tune, launching a “Basic with Ads” subscription tier in November 2022.
The plan is significantly cheaper than Netflix’s ad-free offerings, at $6.99 per month in the US. In October, Netflix said it raised the price of its premium ad-free plan to $22.99 while its one-stream basic plan rose to $11.99.
A growing share of users seem to be signing up for the cheaper option. Earlier this month, Amy Reinhard, Netflix’s president of advertising, said Netflix’s ad tier hit more than 23 million monthly active users.
Last year, Netflix began cracking down on password sharing worldwide. That move has so far proven successful, boosting new subscriber signups and possibly inspiring other streaming services to implement their own crackdowns.
Reif Ehrlich estimates that Netflix’s crackdown may have pushed some password “borrowers” onto Netflix’s cheapest ad-supported subscription tier, fueling its growth.
Overall, Wall Street is expecting Netflix to add 6 million global net paid subscribers, according to data from FactSet.
Will experimentation pay off?
Last year was tumultuous for the entertainment industry as writers and actors went on strike concurrently for several months for the first time since 1960.
Netflix, however, has recently made investments in ventures outside of scripted programming, betting on live programming and video games.
The company’s fourth-quarter results might show whether those efforts are paying off.
In November, Netflix aired its first-ever live sports event, and its third-ever foray into live programming, called “The Netflix Cup,” a crossover competition between Formula 1 drivers and professional golfers.
“We are investing heavily in increasing our live capabilities,” Netflix co-CEO Ted Sarandos said on the company’s earnings call in October.
On Tuesday, Netflix revealed its biggest investment into live programming yet. The streaming service acquired the exclusive rights to “WWE Raw,” currently seen on Comcast’s USA cable network. The 10-year deal is valued at more than $5 billion, according to a filing from TKO Group Holdings, the parent company of WWE. The show will begin streaming live on Netflix in January 2025.
In late February, the company will also stream the 30th Annual Screen Actors Guild Awards live.
The fourth quarter also saw a big expansion in Netflix’s video game offering. In December, Netflix launched three mobile-friendly games from Grand Theft Auto, one of the best-selling video-game franchises of all time.
On the company’s last earnings call, co-CEO Greg Peters said investments in gaming could help draw new subscribers.
“From a strategic perspective, we believe we can build games into a strong content category, leveraging our current films and series,” Peters said.
However, there remains the question of whether these investments will become big revenue drivers for the company, said Matthew Harrigan, a media analyst at Benchmark.
“Video games are a difficult business, I think they’ve actually done a pretty good job there,” he said. “But it certainly isn’t anything that’s transformational for the business.”
Will the content slowdown continue?
Netflix’s fourth-quarter earnings report could provide key insight into the company’s original programming strategy.
This year, the company will see a shakeup in its film department. On Monday, Scott Stuber, Netflix’s global film chairman who helped build the company’s powerhouse movie studio, announced he plans to leave the company in March.
But even before the announcement, the number of shows and original programming Netflix churned out had already hit its peak, according to data analyzed by MoffettNathanson. Since 2022, Netflix’s content mill has slowed, though it remains to be seen whether that trend continues in 2024.
Netflix saw the largest decline in new film and TV released during the fourth quarter compared to other major streaming competitors like Amazon Prime, Hulu, Disney+, Max, Peacock and Paramount+, according to the data.
And while Netflix’s pace of releasing original programming declined, time spent viewing content Netflix borrowed from its competitors went up.
According to MoffettNathanson, to start 2023, only 7% of view time on Netflix was driven by licensed shows owned by competitors (for example: Suits and The Office). Throughout last year, though, that number steadily rose. Eighteen percent of view time in November and 16% of view time in December were spent consuming shows and movies that were licensed from other companies on the platform.
Harrigan said cutting back on originals indicates that Netflix may be trying to become more cost-disciplined and effective, though it could eventually backfire.
“Sometimes they’ve just been plain lucky with hits,” Harrigan said. “When you crank out quantity, sometimes by virtue of the entertainment business, you get an unlikely hit. If you’re trying to have budgetary constraints, you don’t get that hit.”
