Netflix co-founder and CEO Reed Hastings and his co-CEO Ted Sarandos presented the results for Q4 and 2020 this week. The company posted a big subscriber increase and updated the market on content. If you think they are putting the brakes on commissioning Netflix originals – think again. It’s going to be hard to keep up with Netflix’s movie and TV releases again in 2021.
Highlights of Netflix letter to shareholders:
With 8.5m paid net additions in Q4, Netflix crossed the 200m paid memberships mark. For the full year, it added a record 37m paid memberships, achieved $25 billion in annual revenue (+24% year over year) and grew operating profit 76% to $4.6 billion. (All amounts in US$.)
Since the start of 2018, paid memberships have risen from 111m to 204m and average revenue per membership has grown from $9.88 to $11.02
The Crown S4
We’ve made good progress growing our profitability with FY20 operating margin of 18% rising five percentage points over prior year. For FY21, we’re now targeting a 20% operating margin, up two percentage points from 2020 and higher than our previous 19% forecast, due to a more favourable revenue outlook.
As we said last quarter, we intend to continue to grow our operating margin each year at an average rate of three percentage points per year over any few-year period, but we anticipate some lumpiness. Some years we’ll be a little over (like in 2020), some years a little under (like in 2021), but we are trying to keep on an average three percentage points per year long-term trajectory.
Content: 100m households watch The Crown, 72m see Midnight Sky
The big growth in streaming entertainment has led legacy competitors like Disney, WarnerMedia and Discovery to compete with us in new ways, which we’ve been expecting for many years. This is, in part, why we have been moving so quickly to grow and further strengthen our original content library across a wide range of genres and nations. Our fourth quarter slate highlights the breadth and diversity of our entertainment offering.
The Crown S4: Princess Diana (EMMA CORRIN) and Prince Charles (JOSH O CONNOR) in Australia. (Shooting Location: Llano del Buho, Almeria)
In scripted English language television, season four of the critically acclaimed The Crown was the biggest season so far and drove new watchers of prior seasons. In its first 28 days, more member households chose to watch season four of The Crown than each of the prior seasons, helping to grow the number of member households that have chosen to watch this series to over 100m since its initial launch. In late December, we released our first original series from Shonda Rhimes, Bridgerton. This title has proven immensely popular and we’ll have some exciting news about Bridgerton later this week.
Our largest original film of the quarter was The Midnight Sky, starring and directed by George Clooney; we estimate 72m member households will choose to watch this title in its first four weeks. In its first 28 days, 43m member households chose to watch our animated feature film Over the Moon (directed by legendary creator Glen Keane) with high levels of re-watching. We Can Be Heroes (directed by Robert Rodriguez) was another successful family film with a projected 53m member households choosing this title in its first four weeks.
OVER THE MOON – (L-R) “Bungee the rabbit” and “Fei Fei” (voiced by Cathy Ang)
The holiday movie slate also resonated with our members; in the first four weeks, 68m and 61m member households chose to watch Holidate (starring Emma Roberts) and The Christmas Chronicles: Part Two (starring Kurt Russell), respectively.
The first Portuguese language holiday film from Brazil, Just Another Christmas (starring Leandro Hassum), was also a big hit with 26m member households globally choosing to watch in the first 28 days of release.
We continue to ramp up our local original content slate. The top Netflix local titles this quarter include Barbarians (a historical action series from Germany that 37m member households globally chose to watch in the first four weeks), Sweet Home, our Korean language horror show (22m member households), Selena: The Series, which particularly resonated with members throughout Mexico and the US (25m member households globally), and Alice in Borderland, a sci-fi thriller from Japan (18m member households). While designed to be very impactful in the home country, we see many cases of our local originals traveling more broadly. For example, Lupin, an adrenalin-filled French language heist series released in early January, has hit #2 in our US Top 10 list and ranked #1 in dozens of other countries including Brazil, Argentina, Germany, Italy, Spain, Poland, Vietnam, the Philippines and many more. We project 70m member households will choose to watch Lupin in its first 28 days of release.
BRIDGERTON (L to R) REGÉ-JEAN PAGE as SIMON BASSET and PHOEBE DYNEVOR as DAPHNE BRIDGERTON. Netflix ordered a second season this week
In addition to titles with big viewership, we also aspire to have hits that become part of the cultural zeitgeist. In 2020 alone, we had Tiger King, Bridgerton and The Queen’s Gambit. Not only did 62m member households choose to watch The Queen’s Gambit in its first 28 days (making this show our biggest limited series in Netflix history), but it ignited sales of chess sets and inspired the next generation of chess prodigies. In fact, Netflix series accounted for nine out of the 10 most searched shows globally in 2020, while our films represented two of the top 10.
With over 500 Netflix titles currently in post-production or preparing to launch on our service and plans to release at least one new original film every week in 2021 with extraordinary talent, we’re confident we’ll continue to have a great content offering for our members.
Competition: From YouTube to Discovery
It’s a great time to be a consumer of entertainment. There are a wealth of options ranging from linear TV to video gaming to user-generated content on YouTube and TikTok. We continue to work hard to grow our small share of screen time against these major competitors.
Discovery recently launched its streaming service. Disney+ is expanding in new countries and with more content. ViacomCBS will be unveiling its plans for Paramount+ in 2021. Combined with the launch of AppleTV+, WarnerMedia’s HBO Max, and NBCUniversal’s Peacock streaming services, this signifies that these companies all recognise the future is streaming entertainment, a vision we have been working towards since inception.
Netflix strategy is simple: if we can continue to improve Netflix every day to better delight our members, we can be their first choice for streaming entertainment. This past year is a testament to this approach. Disney+ had a massive first year (87 million paid subscribers!) and we recorded the biggest year of paid membership growth in our history.