“Q2 was better-than-expected on membership growth,” is how Netflix’s shareholder letter for its quarterly financial results began. Although if we’re being sticklers for accuracy, we’d swap out ‘growth’ for ‘shrinkage’ in that sentence.
Yes, Netflix saw its number of paid subscribers decline for a second consecutive quarter, down from 221.64 million at the end of March to 220.67 million at the end of June. However, this is indeed better than expected, because the company had previously warned investors that it might lose two million subscribers in Q2.
Netflix has also experienced some challenges recently with its revenue growth. No shrinkage here, but its growth had been decelerating sharply – one of the reasons the company’s share price fell sharply earlier this year.
The deceleration is still real – 8.6% year-on-year growth in Q2 2022, down from 19.4% a year ago – but Netflix talked in its shareholder letter about its plans to reignite its revenues.
That includes an ad-supported tier – “lower priced” rather than free – whose launch date has now been set for “the early part of 2023” with Microsoft signed up as its tech and sales partner. “We’ll likely start in a handful of markets where advertising spend is significant,” explained Netflix.
It’s also exploring new ways to charge subscribers more to ‘add a home’ – paying more if their Netflix account is used in another location (mobile use while travelling excepted). Netflix hopes that the scheme, which is being tested in Latin America, will be a constructive (but crucially: money-making) response to people sharing their accounts with friends and family members.
Why is all this interesting for the music industry? Well, Netflix has often – if sometimes inaccurately – been viewed as a counterpart to Spotify and the big music streaming services in our world. If it can raise prices, why can’t they? Do the reasons it’s losing subscribers also apply to them? And so on.
These are different industries with different content strategies. Exclusivity and original shows are key in video streaming, but firmly off the agenda for the key music catalogues in music streaming, for example. The exclusivity and originals emphasis in our world has moved to podcasts, as well as non-core music – DSP studio sessions, video content etc.
Still, some of the incentives to churn, like cost-of-living crises, run across both markets, so the challenges Netflix currently faces around subscribers and revenues do have relevance to music streaming. When Spotify announced its Q2 financials next week (27 July) we’ll get our latest look at how it’s faring in the current economic climate.
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