February 8, 2023


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Netflix Q4 2022 Call: Ad Tiers, Paid Password-Sharing and More

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Netflix’s new co-CEO duo, Ted Sarandos and Greg Peters, along with Reed Hastings, who has stepped into the role of executive chairman, discussed the leadership transition and more in its fourth quarter 2022 earnings interview.

Overall, executives said there is no significant change in strategy with the executive change. “We’ve always been focused on the future and where the consumer is going,” Sarandos said, adding that Netflix doesn’t have to operate a legacy media business. About 8% of Netflix time in the US is spent watching TV “so that’s a huge amount of growth, even in a market where we’re very well established.”

For Q4, Netflix reported a net gain of 7.7 million new subscribers, beating the 4.5 million previously forecast. The company did not disclose the performance of Netflix Basic With Ads, which launched in the US on November 3 for $6.99 per month, 30% less than the regular Basic plan without ads ($9.99 per month). The ad-supported package, which offers a single stream per account, is available in 12 countries: Australia, Brazil, Canada, France, Germany, Italy, Japan, Mexico, South Korea, Spain, UK and US

Speaking about the level of advertising, Peters said, “It’s ridiculously early but we’ve learned a lot already, I’d say… the technology is all working, the product experience is good and it’s really a testament to both the Netflix and Microsoft teams who have worked to make this happen.” difficult.” He added that customer engagement for users on ad-supported plans is similar to what Netflix sees among customers on ad-free plans. Also, Netflix isn’t seeing many customers switch from ad-free tiers to cheaper ad plans, Peters said.

Disney’s Hulu “had a 10-year head start” on Netflix in ad space, Hastings said in the interview. CFO Spencer Newman said that while Hulu’s subscriptions are estimated to be about half of the ad tier, Netflix sees a similar growth trajectory, according to guidance. “We’re not going to be bigger than Hulu in a year, but hopefully over the next few years, we can be at least as big,” Neumann said.

Next Q1, Netflix expects to more broadly roll out its paid sharing program through which it seeks to convert unauthorized password-sharing accounts of paying customers. The company did not disclose other new details but said it expects this to result in higher net payouts in Q2 than in the current quarter. Based on Netflix’s test run in Latin America, the company expects some “backlash,” according to Peters, which will hurt near-term subscriber growth. Peters described the initiative as “a gentle nudge” to password-sharing accounts for paying users outside their family.

BofA Securities analyst Jessica Reif Ehrlich, who conducted the Q4 earnings interview, asked Sarandos about whether Netflix would be interested in acquiring WWE after founder Vince McMahon returned to the company and actively sells wrestling-entertainment apparel. “We have a lot of M&A activity, we look at all of them, but nothing we can comment on,” he said when asked about WWE.

Sarandos reiterated her talking points on the matter. “On sports, our position has been the same, which is we’re not anti-sports, we’re pro-profit and we haven’t figured out how to deliver a profit by renting big league sports in our subscription model. That’s not to say it won’t change, we’ll be open to it, but it’s where it is today.”

Netflix was asked about its interest in offering a free, ad-supported TV (FAST) service. “Look, we’re open to all these different models right now, but we have a lot on our plate this year,” he said, adding, “We’re keeping an eye on that segment.”

Netflix executives were also asked about the release of Rian Johnson’s “Glass Onion: A Knives Out Mystery.” According to the streamer, it was the fourth most-watched film on the service in its first four weeks of release.

“We are thrilled with every aspect of the ‘Glass Onion’ release,” Sarandos said. With the limited theatrical release, he said, “we created a bunch of demand that we filled in our subscription service.”

Sarandos dismissed riff Ehrlich’s suggestion that the company leave money on the table by taking “Glass Onion” out of theaters after a week. He emphasized that the company’s main focus is driving members to content on streaming platforms: “Everything else is a strategy to drive excitement around those movies.”

Meanwhile, Netflix is ​​experimenting with fitness content — announcing a deal with Nike in December for a workout series — after years of shunning it because much of it was available online for free, Sarandos said. He called the company’s partnership with Nike on short-form fitness content “a really good experiment” with a top-tier partner. “Do people want to use Netflix to get back in shape? If they do, we want to continue serving it,” he said.

At the end of the interview, Hastings noted that he has been on 83 earnings calls for Netflix, with Thursday’s interview being his last.

“Overall, I would say, we had a good first 25 years. And I’m extremely excited for the next 25 years of great Netflix under our broad leadership team,” he said. Before the call, Sarandos commented, “In 22-plus years, Reid has changed my life in the most positive way imaginable.”

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