None of Netflix’s previous positions are sacred. It reversed itself on ads, the Paul-Tyson fight and WWE shows it reversed on live sports. Nothing is off the table if it brings profitable growth. Expect live news to follow.
Subscriber growth to vanish from Netflix quarterly reports
Co-CEOs Greg Peters and Ted Sarandos attributed the strong subscriber growth in the first quarter of 2024 to everything but the real reason: paid sharing. The company added 9.3 million paid subscribers, including 2.6 million in the US and Canada, a region that experienced no growth in Q1 2023. It is odd that the pair didn’t acknowledge the continued positive impact of paid sharing because Greg Peters stated in the Q4 2023 earnings call that he expected it “to improve our growth for years ahead.”
It looks like Netflix is reluctant to let us see the underlying trend in subscriber growth once the positive impact of paid sharing is over. The company says it will cease quarterly reports of subscriber numbers and average revenue per member (ARM) in Q1 2025. In the quarterly earnings letter, the company claimed revenue and operating margin were better performance measures. It also said the introduction of multiple service tiers means that adding each incremental subscriber “has a very different business impact.”
However, subscriber growth numbers and ARM are good measures of a streaming business’s trajectory, which is why some on Wall Street are concerned by the change. Moreover, if Netflix expected continued subscriber growth, it would likely continue to report it. The fact that it won’t report subscribers probably means when paid sharing’s impact is over, subscriber growth is, too.
Ad tier growing pains
According to Mr. Peters, Netflix is following the same ad tier pricing strategy as other streaming services:
“I think a good general guideline for us in the long term is that it would be healthy for us to land overall monetization between our ads and non-ads offerings at roughly equivalent positions.”
However, Netflix’s $8.50 difference in pricing between its ad tier and lowest-cost ad-free tier is the second largest in the industry. Based on comments by 
Spencer Neumann, Netflix’s Chief Financial Officer, the company could be a little ahead of its skis on the pricing differential:
“We’ve been growing our inventory at quite a fast clip, and so monetization hasn’t fully kept up with growth, scale, and inventory because we are still early in building out our sales capabilities and our ad products.”
In other words, Netflix can’t sell all its ad inventory and likely isn’t making up the $8.50 per month per ad-tier subscriber. Oddly, he claimed, “Our CPMs remain strong.” I’m sure Mr. Neumann learned in Economics 101, as I did, that prices go down when there is an oversupply. So, if Netflix CPMs are strong today, they will be headed down tomorrow. And that could make for an ugly Upfront season for the company!
Netflix is in live sports
Clear signs appeared in the earnings call that Netflix is competing for live sports. Mr. Sarandos was asked if the company’s upcoming live boxing match between Jake Paul and former heavyweight champion Mike Tyson indicated a change in position towards live sports. He waxed lyrical about the power of sports:
“But there’s also something incredibly magic about folks gathering around the TV together in the living room to watch something all at the same time. We believe that these kind of eventized cultural moments – like the Jake Paul and Mike Tyson fight – are just that kind of television. And we want to be part of winning over those moments with our members as well.”
He mentioned that WWE Raw would bring live sports to Netflix for the next 52 weeks, though few would describe WWE as a legitimate sport. However, his final remark on the subject shows he is in the market for live sports. He describes the company’s position as:
“Not anti-sports: pro profitable growth.”
None of Netflix’s former positions are sacred if they bring profitable growth. The company has embraced ads and is adding live sports, and we should expect live news to follow.
