OG streamer ends Q4 2022 on subscriber high
The platform added 7.66 million global paid subscribers in Q4 2022, for a total of 230.75 million – over 2.5 million more than analysts predicted.
Its 4% YoY growth in total subscribers was split unevenly across the globe. The company saw a rise of just 910,000 paid memberships in the US and Canada, compared to 3.2 million across EMEA, 1.76 million in LATAM and 1.8 million in APAC.
Internationalization looks to be a focus moving forwards, with the platform’s Q4 shareholder letter pointing to untapped expansion opportunities in “the newly reported markets of Mexico, Brazil, and Poland,” where Netflix is “less than 5% of TV viewing.”
Ad-tier has hiccups, but is gaining traction
Netflix launched its ad-tier back in November 2022 and it was widely reported that it got off to a slow start as existing customers stuck with their core subscriptions – allaying any fears that its cheaper tier would ‘cannibalize’ its existing subscriber base. According to a report by Antenna, in its first month of release, as little as 9% of new sign-ups came from ad-supported plans.
Netflix’s Q4 earnings letter alluded to some hiccups in ad rollout. “It’s still early days for ads and we have lots to do (in particular better targeting and measurement),” the statement revealed. Headlines were made in December 2022 when advertising agency insiders revealed Netflix had been forced to return money, having failed to deliver on its ad-supported viewership guarantees due to insufficient inventory.
However, the Antenna report highlights a slightly different story when it points out that Netflix’s ad-tier is only available for the Netflix Basic Plan and not its Standard and Premium plans. Taken into consideration, this paints a very different picture: the portion of Netflix Basic sign-ups opting for the ad-supported plan is 54% of all Basic tier sign-ups for Netflix.
ARPU is down
Despite Netflix planning for its ad-tier to be ARPU neutral, global subscriber ARPU decreased from $11.85 to $11.49, and US subscriber ARPU from $16.37 to $16.23 across the quarter. Execs might be facing some strategic questions about the play-off between subscriber growth and ARPU decline. Has the new pricing model grown subscribers to the detriment of per user revenue?
Given Netflix’s prediction of a 4% increase in revenue growth across Q1 relies on an increase in paid subscriptions and more money per membership, it’s an area they’ll need to get right.
Streaming sees substantial subscriber losses
Disney+ saw a 2.4 million subscriber loss during its first quarter of 2023 (Disney’s Q1 2023 ran from 1st October - 31st December 2022, in line with the other streamers’ Q4). Disney+ got off to a strong start and the subscriber losses – which take its global subscribers to 161.8 million – mark the first overall reduction since the platform launched in 2019.
Disney+ added 200,000 subscribers in the US and Canada but saw a drop of of 3.8 million in India and parts of Southeast Asia due to ongoing problems with Hotstar.
Although the losses are significant, increases in the subscription price of the service had led analysts to anticipate greater losses of over 3 million. From December 8th, the platform increased the subscription price of its ad-free plan to $10.99 per month, up from the previous $7.99.
Despite price hike, ARPU is down
AMR (average monthly revenue) was 3.93 US dollars per paying subscriber in Q1 2023, compared to 4.41 dollars in the first quarter of 2022. This is despite Disney indicating that, to move towards streaming profitability, it plans to increase the subscription price for premium-tier content. If ARPU continues to trend downward, it could spell trouble for the streamer.
DTC continues to struggle
The Walt Disney Company’s direct-to-consumer (which spans Disney+, Hulu and ESPN) revenue rose 13% to $5.3 billion. However, it’s still a huge cost sink for Disney, posting a loss of $1.05 billion.
The media giant still reports 2024 as its target for Disney+ profitability, but as its CEO introduces “significant transformation”, expect its DTC model to be top of the agenda.
Bob Iger returns for a big shakeup
CEO Bob Iger returned in November, replacing his own replacement Bob Chapek. Since then, a major emphasis has been on reducing operations costs. Thousands of jobs are being cut in an effort to slash $5.5 billion in spending and $3 billion of this is expected to come from cuts to content.
The biggest strategic upset? Rumors that Disney is exploring selling existing licensing rights to competitors to counteract streaming losses, in a move not unlike that of Warner Brothers Discovery. If true, the cost-cutting measures signal a shake-up for the company’s streaming arm: Disney+ regularly cites its IP as one of the platform’s major draws. With Iger in charge and intent on lowering operating costs, it’s more than possible.
Just last month the CEO revealed he was open to selling Hulu, declaring “everything is on the table right now”. There has been much speculation about whether selling Hulu would be wise; whether there would be anyone who would actually buy it (aside from Comcast) and even if Hulu would be better as a FAST service, especially if that would be a route into other markets. There are no easy answers here (Disney+ would have to buy out Comcast to turn Hulu into a dedicated FAST service since Comcast already has Xumo), but the key takeaway is that Disney+ is asking hard questions about how property within its ecosystem is performing.
Poor Q4 streaming is offset by parks
Despite a poor showing from Disney+, the company performed better than expected in Q4 due to revenue from other areas – in particular, $8.7 billion from its theme parks. Post-pandemic, Disney’s parks services are performing well, highlighting the value of its original IP and offsetting streaming losses. Overall revenue was up 8% to $23.51 billion, just beating analyst predictions of $23.37 billion.
As we look to the future of streaming, it’s clear the big hitters with a diversified portfolio have more options before them. Expect Disney+, AppleTV+ and Amazon Prime to continue making strategic plays around bundled offerings that OG streamer Netflix just can’t provide.
Revenue is up across Apple services
Apple is notoriously cagey about Apple TV+ subscriber and revenue numbers. Instead, the tech giant bundles its streaming performance under ‘Apple services’, which include Apple Music, Apple TV+, Apple Arcade, and Apple Fitness.
Apple services were up 6% at $20.8 billion for Q1 (which ended 31st Dec), suggesting the streamer is successfully building on its content strategy. Across its services, Apple now has 935 million paid subscriptions.
AppleTV+ increases pricing
Late last year, Apple raised subscription costs for AppleTV+ by $2 (40% of its original cost) – a sign of a growing trend towards more expensive streaming services and potentially a ploy to improve ARPU now the platform has been around for 3 years. Apple TV+ is also rumored to be planning (and making the right hires) for the introduction of an ad-support tier as a way to pull in more subscribers. In a world where its major competitors offer ad-supported tiers, it seems that they’re left with little option but do the same.
All signs point to SVOD growth
Like AppleTV+, Amazon doesn’t separate its video performance from its overall earnings, keeping quiet on both ARPU and overall subscriber numbers. But Prime content got a large share of its Q4 press release, a sign the platform is coming to rely more on streaming content after its least profitable holiday quarter ever. “Subscription services” – a large chunk of which is made up of Prime membership – brought the company $8.1 billion in Q4.
Content bundling comes out king
Kantar’s Entertainment on Demand survey found the platform took a whopping 32.7% share of new SVOD subscribers in Q4 of 2022 in the US. (For comparison, Disney+ was at 9.5%, Netflix 7.1%, and AppleTV+ 7.4%).
Rather than just offering streaming, Prime’s bundling of free shipping, music and gaming with its SVOD content – for the equivalent price of Netflix’s video content alone – seems to play well with new subscribers.
“That is remarkable value that you just don’t find elsewhere,” said CEO Andy Jassy, adding, “as we continue to make the service better and better and fully featured, we see people continuing to spend more at Amazon across our various businesses.”
SVOD might no longer be the fastest-growing segment of streaming, but remains by far the biggest. How the SVODs adapt to market changes continues to impact how the industry develops as a whole.
Right now, they’re positive about the possibilities. Netflix is gesturing to internationalization and the opportunities for SVOD returns abroad, and Amazon and Apple’s service bundling is giving them leeway to make high-profile, high-cost content, such as Amazon’s The Rings of Power.
It’s true Disney+ and Warner Brothers Discovery are bucking the trend and taking a less innovative cost-saving approach. In the case of Disney+ , this comes off the back of a 2022 that saw the platform spending significantly in the hopes of edging out Netflix as the market leader. Netflix had a similar rethink about content strategy across 2022, which appears now to have yielded results.
SVODs are reshuffling their piece of the pie in a rapidly evolving market in which FAST has changed the game; competition for eyeballs is more fierce than ever; and living costs means customer loyalty is hard to win. The SVODs have rethought their strategies accordingly, but unlike back in the day, when it was just SVOD vs. SVOD, there’s no one strategy to win them all.
The real question is what the continued move towards bundling means for the model of offering SVOD services alone. And with all the streamers, keep a close eye on bottom lines and ARPU as we continue through 2023: they’ll be the true test of each model's viability.
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