Analysis

Subs surge made Netflix an $8.3bn streaming business in 2016


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Netflix continues to show no obvious interest in expanding from video into music-streaming, but the company remains the subject of intense interest from the music industry and its digital partners.

That’s no surprise, given the strong growth of its subscription-focused streaming business in 2016, as revealed by its latest financial results published last night.

“In 2016, we generated $8.3 billion in global streaming revenue (35% y/y growth) and finished the year with 93.8 million members on 19.0 million net additions vs. 17.4 million in 2015,” explained Netflix in its letter to shareholders.

“This quarter marks the 10-year anniversary of our launch of streaming. The next decade will be even more amazing and tumultuous as internet TV supplants linear TV, and as we strive to remain a leader.”

Netflix generated $2.35bn from its streaming business in the final quarter of 2016 alone, up 41% year-on-year, posting an operating profit of $154m and a net profit of $67m – the latter figures currently unheard of (bar Napster’s small profit in one quarter last year) in the music-streaming world.

Netflix added more than seven million net new members in the fourth quarter, with more than five million of them outside the US.

This month has seen a flurry of analysis hailing the fact that as global music-streaming subscribers across all services reached the 100 million milestone, that also meant they had overtaken Netflix for the first time.

Here’s a bit more context on that though: in 2016, Netflix averaged 1.6 million net new subscribers a month. As we reported in December, Apple Music ended the year adding around one million new subscribers a month, while Spotify was adding around 1.7 million a month.

Other points of interest: Netflix will up its investment in content from $5bn in 2016 to more than $6bn in 2017, yet it also expects to increase its operating margin: “We’ve been around a 4% annual operating margin for the past two years, and we are targeting about 7% for the full year 2017,” explained the letter.

Executives at Spotify could be forgiven for eyeing these predictions enviously, as it continues to thrash out new licensing deals with the three major labels that will pave its own way to profitability.

Stuart Dredge

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