In a recent and much anticipated earnings call, Netflix announced a new strategy for the company’s shareholders: changing the focus from subscriber growth to revenue and profit. Kim Masters and Matt Belloni discuss what this means. Plus, they look into the future of DC Films.
Netflix’s new strategy: revenue and profit
Kim: [Netflix has] executed a 180 pivot for a long time: they were all about subscriber growth. Although they did add a couple million-plus subscribers, subscriber growth is no longer the thing. The thing is revenue and profit, which they do have at last.
Netflix throws shade at the competition
Kim: And by the way, their competitors are “pathetic” and losing money. I will note when they threw some shade towards streaming services like Disney+ and HBO Max, those companies do have other businesses, and Netflix doesn't. But they still made some hay out of the fact that they believe those people are losing money.
Matt: It's pretty ridiculous the fact that they are pivoting here when the comps are favorable to them. This is a company that for the past 10 years has dined out every quarter on their subscriber growth, regardless of how much money they were losing to get to that. And now, when they've gotten there, they are trying to switch the narrative.
Netflix has added 2.4 million subscribers
Matt: I don't know [if] people are going to follow that wish. I think people are still going to report about their subscriber numbers. But this quarter, their subs were actually pretty good: 2.4 million ads, which is about two and a half times what they predicted.
Kim: Although these are not the most lucrative subscribers.
Matt: No, not necessarily. A lot of the growth was in Asia and not necessarily the markets where they charge more like the US, which only gained about 100,000 subscribers. But it's certainly about face from the past two quarters where they lost subscribers and did not meet their expectations. And they are saying that they're going to add about 4.5 million subscribers in this last quarter, which will be down from last year. But still, the arrow is pointing in the right direction.
The launch of its advertising tier
Matt: Now we're going to get this advertising tier that's launching on November 3, and Netflix really hopes that that supercharges the subscriber growth while not cannibalizing the revenue from those subscribers too much.
Kim: We'll see how many people want to go for that $7 ad version. I think people want to go for that, from what I hear.
Rising tide
Kim: In fairness to them, they've had a great run with this “Dahmer,” a huge hit around the world. Brian Murphy bet [is] paying off and he has “The Watcher” right behind it, which seems to be doing well.
Their stock shot up quite a lot in the aftermath of this call, and I think it heartens other companies, even though Netflix wants to throw shade because they are growing. That's why Netflix [doesn’t] want to talk about subscribers because Disney is adding much faster at this point, they're still growing. [Disney+ has] only been in this business a much shorter time than Netflix.
Matt: All of these companies are now considered streaming companies by Wall Street, so when Netflix does well, Disney and all these other companies’ stock goes up too.
Kim: That's good for everybody. Rising tide!
Kevin Ulrich, Pamela Abdy and Michael De Luca pose during the red carpet premiere of "Cyrano" in New York City, on February 23, 2022. Photo by Caitlin Ochs/REUTERS.
Plus, DC Films head exits
Kim: Walter Hamada, who had been running the DC Films, has exited the building. There is now a bit of a race as “Black Adam” comes out. That's a movie made under the old regime but sold by the new Warner Bros. Discovery regime. They are very much hoping to get DC relaunched. They've had their difficulties matching Marvel, which has Kevin Feige, who is a unicorn.
Who runs it now?
Kim: I predict that Mike De Luca and Pam Abdy, who now run the studio, but are not supposed to run DC, will continue to have a hand in DC. They're acting in that capacity now: De Luca is being re-marketed as the comics guy, even though that was not David Zaslav original intent.
Matt: No. And they got a very public “no” from Dan Lin, a producer of the Lego franchise that they wanted to come in and run DC. That didn't work out, so now they're back to square one.
Maybe that works
Matt: They're looking for this magical executive that they believe exists out there somewhere. I don't think they're gonna find this person. So then it becomes a question of whether they just give it to De Luca and Abdy, or whether they just bring in someone that they don't love, but who can tread water and do this job, kind of.
Kim: I think they will bring that person in, with De Luca and Abdy involved, and I think a lot of that will be a version of this world, where a lot of big filmmakers like Todd Phillips, Matt Reeves and James Gunn, maybe have a piece of that world. It's going to be maybe a different model. Maybe that works.