Netflix added 2.91 million subscribers in the Asia Pacific region (APAC) fourth quarter of 2023 (Q4 ’23). This makes APAC the region with the second-lowest subscriber addition only slightly ahead of the United States and Canada (UCAN) which added 2.81 million additional subscribers in Q4. Although UCAN has the least number of subscriber additions, it leads in average revenue per membership (ARM) at $16.64 compared to APAC which brings in the lowest ARM at $7.31. Asia Pacific’s ARM has been on the decline for several quarters, dropping $0.72 when compared to Q1.
Within the APAC region, Netflix’s monthly active users in India seem especially on the decline. According to data collated by the investment bank UBS’s Evidence Lab, the company has seen 0% growth in monthly active users in India in Q4. The company also saw a 2% drop in monthly active users in India in the previous quarter.
— Manish Singh (@refsrc) January 23, 2024
Despite the decline evidenced in India, Netflix seems to be faring well overall. The company added 13.12 million paid subscribers in Q4 and experienced a 1% increase in ARM on a foreign exchange neutral basis. “This was in-line with our expectations of ‘roughly flat year-over-year’ ARM due to limited price increases over the last 18 months, as well as price reductions in some countries early in 2023, which were partially offset by price rises in the US, UK and France in Q4’23,” the company explained in its letter to shareholders.
Why it matters:
The streaming landscape in India has seen a major change recently. Just this week, Sony Pictures announced that it is no longer merging with Zee. This merger would have brought together over 70 TV channels, two video streaming services (Zee5 and SonyLiv) and two film studios (Zee Studios and Sony Pictures Films India). On the other side of the spectrum, Disney+Hotstar and Reliance Jio (which owns Viacom 18) are reportedly merging, bringing their streaming service offerings under one umbrella.
In such a circumstance, it is important to study the performance of Netflix — which is the most expensive streaming service in India — to get a sense of how streaming services are faring, both in the region and internationally.
Are there any mergers/acquisitions in Netflix’s future?
“… it’s logical to expect further consolidation, particularly among companies with large and declining linear networks. We’re not interested in acquiring linear assets,” Netflix said in its shareholder letter. While the company didn’t make this statement concerning the changing landscape in India, the companies that planned mergers/canceled mergers in India have large linear networks. [Quick context: Here linear refers to traditional forms of content.]
“We believe that further M&A among traditional entertainment companies will materially change the competitive environment given all the consolidation that has already happened over the last decade (Viacom/CBS, AT&T/Time Warner, Disney/Fox, Time Warner/Discovery, etc.),” the company mentioned, adding that despite this, it expects the sector to remain highly competitive. This competitiveness will come from “ongoing heavy investment from large tech players like YouTube, Amazon and Apple; and broader competition for people’s time, including gaming and social media (TikTok, Instagram etc.)”
Impact of paid sharing on Netflix:
Netflix has been making attempts to curb password sharing since 2022. It did so by introducing two alternatives —adding a paid sharing model (where users can pay extra and add an additional profile to their Netflix account) and an ad-supported model (which provides users with cheaper subscription options). In the previous quarter, the company said that one of the reasons for its rise in subscribers was the rollout of paid sharing.
This quarter, the company was asked about its plans to drive subscriber and revenue growth once the effects of paid sharing slow down. To this, Gregory K Peters, Netflix’s President, responded during the company’s earnings call that if the company continues to improve its core offerings, “then our paid sharing work and our ads work creates a more effective engine to translate all that value into revenue growth. And will support increased conversion of our addressable market in many years to come.”
Netflix’s plans to increase prices:
The company mentioned that it recently made price adjustments in the US, UK and France. Netflix had put price adjustments on hold while it began rolling out paid sharing because it saw that as a substitute for price increases. “Now that we’re through that, we’re able to resume our sort of standard approach towards price increases,” Peters said. The company’s price increases in the US, UK and Frace yielded “better-than-expected” results.
On the performance of Netflix’s ads plan:
Just like the previous quarter, Netflix saw a 70% quarter-on-quarter growth in its ads plan. The company said that this was supported by improvements in its offerings like the addition of downloads and higher resolution to the ads plan, and the phasing out of its Basic plan for new and rejoining members in its ads markets. As of Q4, the company is at 23 million monthly active users in its ads plan and the ads plan accounts for 40% of all Netflix sign-ups in the ads market. Netflix said that on the advertiser side, it plans to launch more ad products, highlighting that they have binge ad sponsorships now. “We’re very optimistic about it. It’s a huge opportunity, $180 billion of ad spend ex [cluding]-China and Russia, $25 billion alone on Connected TV,” Peters said.
The company notably doesn’t offer its ads plan and paid sharing service in India. When asked whether the company plans to expand its ad plans to more countries, Peters said that Netflix still has a lot of work ahead of it in reaching maturity in the countries where it is currently operating its ads plan. “I would say, never say never on expanding beyond that, but it’s worth noting that the countries that we are currently operating in represent about 80% of global ad spend. So we’re already working in the spaces where there’s the majority of opportunity,” he explained.
During Netflix’s earnings call an analyst brought up that Amazon Prime plans to make ads a default option by the end of January and asked whether Netflix had considered doing the same as well. Peters explained that while Netflix had considered this, given its long history of not having ads, “we thought it was better for our members rather than force them into a change and give them ads. But better to attract them to the ads plan for the ones that wanted it.”
Netflix’s strategy for its gaming arm:
“Games, it’s a huge opportunity, $140 billion in consumer spend, ex- [cluding] China and Russia. And we believe we can build games as strong components, and other content category to deliver entertainment value to our subscribers,” Peters said. The company said that licensing existing games has been a major part of its gaming strategy. “1 of the things that we’ve learned is that recognizable games, that’s either existing popular game titles or game franchises or games that are based on well-known IP [intellectual property], and in many cases, that’s IP from our own films and series, those are the ones that are working the best for us right now,” Peters explained.
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