Netflix has reported a strong Q2 with 17% revenue growth and an operating margin of 27% vs 22% last year.
The streaming business now expects full-year 2024 reported revenue growth of 14% to 15% (up from 13% to 15%).
It’s been a huge week for Netflix. On Wednesday the streamer learned it was the most nominated brand for the 76th annual Primetime Emmy Awards. Netflix received 107 nominations across 35 series, TV movies and specials, including for dramas The Crown, Baby Reindeer, Ripley (pictured above) and 3 Body Problem; documentaries Beckham, and The Greatest Night in Pop; reality shows Love is Blind, Queer Eye and Love On The Spectrum; movies Unfrosted and Scoop; animated series Blue Eye Samurai; and its live nomination for The Greatest Roast of All Time: Tom Brady.
Netflix has also just revealed the cast and release date for its next big-budget Australian original drama, Territory.
Anna Torv in the forthcoming Netflix drama Territory
Membership closing in on 300m
Netflix global membership surged over 16% YOY from 238m to 277m. If that sort of increase is maintained, Netflix will be looking at 300m plus subscribers sometime in 2025. As co-CEO Ted Sarandos said on the earnings call, if subscriber growth continues it will increase the US$17b annual content spend proportionally.
Numbers of subscribers are not released for individual countries. Australia is part of the APAC region for Netflix. The growth there was significant – 40m to 50m in the past 12 months. The growth in the Indian market would account for much of that.
The best guidance we have to the number of customers in Australia comes from Telsyte about 10 months ago when the Netflix subscribers base was reported to be just over 6m.
Baby Reindeer
Making the platform better
With its latest earnings, Netflix addressed several areas of the streaming business.
“We’re working to improve every aspect of Netflix so we can better serve existing and future members,” said the company’s shareholder’s letter.
The platform has had a string of hit series so far in 2024. Some of the Q2 shows it named included Bridgerton S3, Baby Reindeer, Queen of Tears and The Great Indian Kapil Show. Popular Q2 films included Under Paris, Atlas and Hit Man and the largest-ever Netflix live event, The Roast of Tom Brady.
Other highlights from the Q2 earnings were:
• We began testing a new, simpler and more intuitive TV homepage in June, which we believe will significantly improve the discovery experience on Netflix.
• We’re making steady progress scaling our ads business. Ads tier membership grew 34% quarter on quarter, and we’re building an in-house ad tech platform that we’ll test in Canada in 2024 and launch more broadly in 2025.
Engagement and competition
The company updated investors on time spent viewing, both via Netflix and its competitors:
Viewing is key to Netflix’s success. It’s the best proxy we have for member happiness, and when people watch more, they stick around longer (retention), talk about Netflix more often (which drives acquisition) and place a higher value on our service.
According to Nielsen, streaming accounts for 40% of total TV time in the US today, with Netflix and YouTube the clear leaders in direct-to-consumer entertainment.
Collectively our two services account for almost half of all streaming TV watch time in the US. In H1 2024 (and despite headwinds from paid sharing) Netflix generated more view hours in the Nielsen Top 10 across film, series and licensed titles than all the other streamers combined. The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services and linear continues to decline.
Netflix and YouTube compete for people’s time and attention. Our movies and TV shows drive excitement and fan engagement on YouTube, as well as social media. We believe that our entertainment offering satisfies important needs for both consumers and the creators of great movies and TV shows, who need partners that can share in the risk inherent in bringing these stories to life. Looking to the future, we believe our biggest opportunity is winning a larger share of the 80%+ of TV time (primarily linear and streaming) that neither Netflix nor YouTube has today.
Why Netflix is spending US$17m this year on content
One thing heard often from market observers is the amount of content commissioned for Netflix.
Commentators often ask if Netflix needs so many shows and films, and the answer is an emphatic yes. With 278m member households — and more than two people per household on average — we’re programming for an audience of over 600m. It’s a huge number and to delight this many people, we need lots of great stories that appeal to many different tastes and moods. It’s why we continue to increase the investment in our programming, even as many of our competitors are pulling back.
In Q2, we delivered variety and quality across an amazing slate of loved titles, including Bridgerton season 3 (98.5m views), which is now our sixth most popular English language TV series of all time. #Polin [Penelope and Colin] also propelled seasons one and two of Bridgerton, as well as Shondaland’s prequel Queen Charlotte, back into the Top 10. Under Paris*, our buzzy shark horror movie from France, is now number three on our most popular non-English film list with 90.9m views. Other successful titles include the Spanish investigative TV thriller The Asunta Case (31.3m views), the crime series Crooks from Germany (15.7m views), which we just renewed for a second season, Queen of Tears (29.3m) from Korea as well as the sci-fi action movie Atlas starring Jennifer Lopez (79.3m views), the acclaimed comedy Hit Man (33.2m views) and City Hunter (16.5m views), a live action adaptation of the Japanese manga.
Hits still to come in 2025
In an answer to a question on the analysts call, co-CEO Ted Sarandos spoke about key content still to come:
Just before the end of this year, we’ve got the Squid Game return. We’ve got Emily in Paris return. You’ve got a new season of Selling Sunset, Lincoln Lawyer, The Diplomat, Virgin River, Love is Blind. Ryan Murphy has an incredible new season of Monsters that tell the Lyle and Erik Menendez story.
Netflix live
The Roast of Tom Brady (22.6m views) was the platform’s biggest success ever in live event programming. Something Netflix calls its ability to deliver big, buzzy live moments for its members.
There is a slate of live events scheduled which will include Joe Rogan: Burn the Boats, a live comedy special broadcasting into Australia on August 4. It is Rogan’s first comedy special in six years. Also, Chestnut vs Kobayashi: Unfinished Beef (a hot dog-eating competition!), the Jake Paul and Mike Tyson boxing match as well as weekly WWE programming starting in 2025. In the US, Netflix will be the home for both Christmas Day NFL games this year.
Partners yes, Bundling no
The streaming service also explained its ongoing relationship with partners. And it clarified its stance on bundling which many see as a solution for some of streaming platforms searching for profitability.
From the early days of streaming, we saw partnerships with device makers and pay TV and mobile operators as key to ensuring Netflix was easy to find and use. These partnerships are a win-win – making it simple for people to discover, sign up, use and pay for Netflix. In turn, our device and operator partners benefit through increased device sales from consumers seeking devices integrated with Netflix and greater customer acquisition and higher retention as well as the opportunity to upsell higher-value data or content packages.
We haven’t bundled Netflix solely with other streamers like Disney+ or Max because Netflix already operates as a go-to destination for entertainment thanks to the breadth and variety of our slate and superior product experience. This has driven industry-leading penetration, engagement and retention for us, which limits the benefit to Netflix of bundling directly with other streamers.
Advertising: Ratings coming to UK market
Advertising has been key to driving subscriber growth, as Netflix explained.
Ads fulfill two important strategic priorities for Netflix: first they enable us to offer lower prices to consumers; and second, they create an additional revenue and profit stream for the business. Just over 18 months since launch, we continue to scale our ads tier, which now accounts for over 45% of all signups in our ads markets.
Its attractiveness ($8 a month in Australia) – coupled with the phasing out of our Basic plan in the UK and Canada, which we will now start in the US and France – has increased our ads member base by 34% sequentially in Q2.
We also continue to improve the service we offer advertisers. For example, in the UK, starting September, Barb will measure Netflix’s ad-supported plan, making it easier for clients to plan campaigns and understand their audiences on Netflix.
Testing new ad tech, expanding programmatic
We also have new features like the “pause” or “keep watching” ads and in the two months since the launch of the beta in May, we’ve closed over 60 pause ad campaigns with big brands like Expedia, Coca-Cola, Ford, L’Oréal and McDonald’s. Most important of all, at our Upfront, we announced our new, in-house ad tech platform, which we’ll test in Canada later in 2024 and launch more broadly in 2025. This will give advertisers new ways to buy, insights to leverage and ways to measure impact.
On the programmatic side, we’ll also expand our capabilities this summer to include The Trade Desk, Google DV 360, and Magnite.
Our ad revenue is growing nicely and is becoming a more meaningful contributor to our business. But building a business from scratch takes time — and coupled with the large size of our subscription revenue — we don’t expect advertising to be a primary driver of our revenue growth in 2024 or 2025.
See also: Netflix and YouTube remain top choice for Australian audiences: YouGov