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Millions of Indians signed up to stream Netflix for free; company is working to convert the interest into growth

Netflix’s two day StreamFest in December 2020—where users in India could practically watch Netflix’s entire catalogue for free—brought millions of users to the service, Netflix’s chief operating officer Greg Peters said during a call with investors on Tuesday. Now, the company is analysing how that interest through this specific tactic can be converted into sustained incremental growth, Peters said. The online streaming platform now has over 200 million subscribers.

Netflix added more than 8.5 million new users during Q4 of the current financial year, recovering from its slump in the previous quarter during which it added a little over 2 million subscribers. Over the last three years, Netflix’s average revenue per user (ARPU) has grown by about 10%. Three years ago, it’s ARPU was just under $10,and has now grown to $11 in the last quarter, according to Spencer Wang vice president of finance, investor relations and corporate development at Netflix.

Notes from earnings call

  • Disney vs Netflix: When asked how Netflix was viewing Disney as a competition in the streaming space, Wang said that 30% of Disney’s 87 million paid subscribers came from Hotstar, which “we all sort of recognize as a bit of a different service”. “…the 87 million is closer to 60 million and our ARPU is roughly double or actually more than double,” said Spencer Neumann, Netflix’s chief financial officer.
    • Reed Hastings, Netflix’s co-founder said that the competition gets the company fired up about increasing its membership and content budget. He also said that Netflix was looking forward to overtaking Disney in the family animation content genre.
  • COVID-19 helped shifting from linear programming to streaming: “[…]what COVID has done for us is it’s accelerated that big shift from linear to streaming entertainment,” Wang said. However, he conceded that as of now, there is “more short-term noise and uncertainty”.
    • “What we do see is that viewing is up in every region of the world. It’s kind of returned from those peak COVID levels, but it’s up year-over-year in all regions. Retention is better than it was a year ago. Acquisition is strong. So the underlying metrics are strong in the business, but I don’t want to provide false precision on a 12-month target.” Wang added when asked about forecast for 2021.
  • Netflix working on new browse-free content discovery model: The new model, which the company has been testing and plans to roll out globally in the first half of 2021 will allow users to let Netflix pick a piece of content on their behalf. This way, Peters said, users can skip browsing entirely.
  • Need to improve Netflix’s accessibility: Peters admitted that the company needs to increase accessibility of the Netflix service. The company knows that it needs to expand on payment methods, and is “constantly working to add more of those,” Peters said.
  • On original programming being released in movie theatres: When asked how Netflix viewed releasing some of its original programming in movie theatres, Ted Soranos, Netflix’s co-chief executive officer said that the biggest issue there is that the company has to commit to a “very long window of exclusivity” to get access to any theatres.
    • Hastings pointed tothe model that Warner Brothers adopted during the pandemic: WB’s films were available to watch both in theatres and also to stream on HBO Max. However, he said that Netflix will wait till the end of the pandemic to get a clean read of that strategy.
  • Why Netflix passed on certain investments in Asia: “Our view is many people subscribe to multiple different services. So acquiring another one just for their members doesn’t really help us and we want to stay focused on capturing and earning that subscription from each person organically rather than just doing some sort of M&A deal,” Wang said.
  • Plans to release at least one new original film in 2021: In a letter to shareholders, Netflix said that its productions are back on schedule and running in most regions. More than 500 titles are currently in post production or preparing to launch, and the company is planning to release at least one new original film every week in 2021.

Financial Snapshot

  • Revenue: $6.64 billion, up by 21.5% YoY
  • Operating income: 954.2 million, up by 108% YoY
  • Subscribers: 8.5 million, up by 287% QoQ

Downloads: Financials and letter to shareholders | Transcript

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