Netflix’s UK business grew 12% to £1.54bn last year as the streaming giant increased profitability in 2022.
Filings at Companies House, published yesterday, revealed that Netflix’s operating profit in the UK was $31.6m in 2022, up from £28.6m in 2021.
Pre-tax profit, meanwhile, was £26.7m, up from £22.7m the year before.
Netflix managed to increase its profit margin despite staff costs going up by nearly a third. Its average employee number was 202 in 2022, up 32% from 153 in 2011. Salary costs grew by a similar speed: from £29.2m in 2021 to £41.8m last year.
Analysis: price increases outstrip single-digit membership growth
The Netflix UK financials, posted for only the second time in the company’s history, tell a story of moderate user growth and substantial price increases.
Netflix reported 4% growth in the average number of paid memberships in 2022. While this is significant, it’s hardly a surge.
Compare this to the 14% increase in average monthly revenue per paying membership. That’s a much bigger source of revenue growth, and it’s been well documented how major streaming services have hiked up subscription fees over the last 18 months as subscriber growth plateaus in major markets like the UK.
In March 2022, Netflix increased its entry-level subscription plan by £1 a month to £6.99 (this has since been phased out to encourage people to pay more for ad-free or use the Basic With Ads option). Netflix’s most popular package, which offers HD viewing, two simultaneous streams and two devices to register for downloads, increased from £9.99 to £10.99. And the cost of Netflix’s premium plan increased by £2 a month to £15.99.
Netflix did not confirm how many UK subscribers it has, but UK TV audience measurement company Barb Audiences estimated this figure to be 17.2 million at the end of 2022. Barb’s estimate of 3% UK user growth is proven to be in the right ball park by Netflix’s official disclosure.
The key question for 2023 is how much additional revenue Netflix is able to make from its cheaper, ad-supported subscription tier, which launched in the UK nearly a year ago. As The Media Leader noted last week, the short tenure and exit of worldwide advertising boss Jeremi Gorman did not suggest a great start to that venture.
As inflation remains stubbornly high and Netflix faces greater competition from streaming rivals and regional broadcasters with improved video-on-demand offerings, the streaming giant will not be able to keep increasing prices in mature markets like the UK if it wants to continue growing.
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