This analysis was first published in SvD Näringsliv, in Swedish, on January 24th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Growth was in focus as Netflix crushed market expectations. The key to success spells advertising — and a bet on a well-proven idea: good old-fashioned TV.
In 1998, a radical idea was launched: films delivered to your door, to watch whenever you want.
Today the concept is familiar. But in the 1990s, consumers had to be more patient. The company with the idea was Netflix, and the concept involved mailing DVD discs in red envelopes to viewers. Compared to renting them at a video store, however, it was a marked improvement for many.
Until last autumn, Netflix was still sending DVDs in the post to the remaining customers who wanted them. But in parallel, one of the great media and entertainment companies of our time has grown through streaming.
Netflix is, in other words, used to change. And now it is time again.
The streaming market has for many years been driven by what looked like endless growth. People could not get enough of video — especially during the pandemic years, when the range of other activities was limited. But in 2022, the market appeared to stall. Competition became increasingly fierce as major players like Disney+ and HBO Max took market share. That was the starting gun for a new period of change, in which old certainties had to be revised and strategies rewritten.
Away from flagship drama productions, inspiration came from another direction — something you could straightforwardly call traditional TV. Shorter and cheaper programmes to produce, lighter concepts, and a type of entertainment that can run in the background while you do something else.
And, of course, the most significant difference that commercial TV has from ordinary streaming services: adverts. Netflix has had them too, for just over a year now.
When Netflix reported its quarterly results on Tuesday evening, its new advertising model was in focus. Showing adverts allows it to offer cheaper subscriptions — those who want to avoid them pay more. Through this, the market hoped growth would pick up again. It did — and then some.
Over the past quarter, Netflix gained 13.1 million new subscribers — substantially more than the approximately 8.7 million it added in the previous quarter. The streaming giant also beat market expectations on revenue and took the opportunity to raise its profitability outlook. The share price rose more than 8 percent in after-hours trading.
Particular attention was paid to the impact of advertising. Of its total 260.8 million subscribers, more than 23 million have chosen the ad-supported tier. In just over a year, it accounts for nearly 10 percent of the total. Making TV via the internet seems to be working extremely well.
Several competitors are also looking to the TV model. Next week, Amazon’s Prime Video will begin showing adverts among its programmes. Existing customers have the option to upgrade their subscriptions to avoid them, but adverts will become the new default for Prime Video. Amazon also already has a larger ad-supported video push through its Freevee service — “free” because it carries adverts.
Another factor driving Netflix’s growth was the crackdown on password sharing. When times were good, then-CEO Reed Hastings described this as a problem “you have to learn to live with.” That attitude has changed. Netflix has actively worked to prevent subscriptions from being shared improperly, including by offering paid add-ons that allow account sharing for an extra fee.
Netflix’s strong results run counter to a somewhat battered entertainment industry. Large parts of Hollywood have had a tough time lately, hit hard by a long strike among actors and screenwriters. Competitor Disney is occupied partly with fending off activist investors demanding change, and several services are discussing mergers and acquisitions.
Netflix — substantially more international than its closest competitors — was less affected by the American strikes. Programmes from different parts of the world have been able to keep flowing into its service. On top of that, dependence on individual big-budget series is lower now than before.
With strong results and renewed growth, the TV model looks set for a bright period ahead — particularly in the new, changed Netflix.
