Netflix accelerates revenue growth as it begins Barb reporting in the UK
Netflix posted revenue growth of 16.8% in Q2 to $9.56bn — its strongest growth since Q2 2021.
Revenue for its ad tier grew 34% quarter on quarter, according to the company. Netflix said the ad tier now accounts for 45% of all new sign-ups in markets where it operates advertising.
It added that new features like “pause” or “keep watching” ads have been used in the two months since they launched in beta in 60 campaigns with brands including Expedia, Coca-Cola, L’Oréal and McDonald’s.
Netflix added 8.1m subscribers in the quarter, the lowest figure since Q3 2023, although this represented 16.5% growth — slightly higher than in Q1. Total paid memberships now stand at 277.7m.
For the next quarter, Netflix forecast revenue growth of 14% year on year and upgraded full-year 2024 growth forecast to 14-15%.
The company also announced that, in the UK, Barb will begin reporting its ad tier figures from September.
Top executive exits
Meanwhile, just before its results Netflix also announced that Peter Naylor, vice-president of global advertising sales, has left the company.
Naylor spoke at The Media Leader‘s The Future of TV Advertising Global in December 2023.
At the event, he discussed showing advertisers that Netflix was “not just trying to offer what everyone else is offering” and that it wanted to “set a new standard” and “superior ad models”.
Analysis: Password-sharing crackdown effect
A third-party analysis of Netflix’s figures, released in advance of the earnings, had predicted a slowdown in subscriber growth in Q2 to levels not seen since before Netflix’s password-sharing crackdown was instituted last year. It also anticipated a more than doubling of ad revenue.
The password-sharing crackdown had previously been declared a success by Rob Collier, head of strategy at media market research company MTM. He noted in March: “The number of people who are sharing passwords is reducing, but crucially the number of people who are subscribing to Netflix in the UK is going up.”
Globally, this is no longer the case — paid net additions steadily decreased from its high of 13.1m in Q4 2023 to 9.3m in Q1 and 8.1m in the latest quarter.
Where next?
With a dip in subscriber growth, it is plausible that the password-sharing crackdown was a short-term solution to the long-term problem of maintaining subscription growth in an increasingly crowded streaming market.
Still, Netflix’s position as the “default” streaming service for many consumers is notable. MTM’s spring analysis suggested the service is less vulnerable to churn than many of its competitors due to its outsized content library relative to, for example, Apple TV+.
Nevertheless, the streaming giant’s executives have increasingly communicated the importance of other aspects of its business model beyond the number of subscribers and the price of subscription, which has been raised over the past year and is likely to increase again.
The Netflix delusion: Turns out the normal rules of media did apply, after all
Netflix previously announced that it will stop reporting subscriber numbers beginning in 2025, as it prefers to focus on communicating other business metrics. Despite an immediate negative reaction in terms of the share price, co-CEO Greg Peters argued that the number of subscribers is “increasingly less accurate in capturing the state of the business” due to increasingly large shares of revenue coming from advertising.
With subscription reporting going by the wayside, Netflix’s ad tier will take on additional importance from investors. In May, president of advertising Amy Reinhard announced the tier had 40m global monthly active users, with 40% of new sign-ups opting for the cheaper ad plan. This figure has increased once again in Q2.
Earlier this year, Netflix said it would expand the number of programmatic partners for advertisers beyond Microsoft and that it was developing an in-house adtech platform — both decisions made to improve the company’s relationship with advertisers.
Netflix said it would expand its programmatic capabilities this summer to include The Trade Desk, Google DV 360 and Magnite, and confirmed its in-house adtech platform will be tested in Canada this year and “launch more broadly” in 2025.
Its letter to shareholders said this platform “will give advertisers new ways to buy, insights to leverage and ways to measure impact”.
In addition, audience measurement remains paramount, as evidence by its latest collaboration with Barb in the UK.
Barb CEO Justin Sampson has previously stated that Netflix wants to “be a part of the TV industry”, including Barb’s total TV reporting.
Netflix has also begun more aggressively pursuing additional verticals, namely live sport and gaming, to both provide added value to existing subscribers and to sell advertising against. Both investments are costly, as are production expenses on original shows and films.
Regardless of whether investors judge the future value of Netflix’s business based on subscribers, ad revenue or some other metric, one thing will always remain true for Netflix (or any entertainment company): more eyeballs translate to more revenue, be it from the consumer or from the types of CPMs it can charge.