Netflix's First Quarter With Ad-Supported Tier Exceeds Expectations
Netflix did not have a great year in 2022. That being said, things are already looking up in 2023, as the company recently reported its fourth-quarter earnings from last year. The outlook was better than Wall Street expected, and the ad-supported tier launched late last year in particular brought in more subscribers than anticipated. Per the company's letter to its shareholders, 7.66 million subscribers signed up for the cheaper, ad-supported plan.
Ahead of the report, forecasts expected around 4.5 million subs to be added thanks to the new plan, which costs $6.99 per month. This is far cheaper than the $15.49 it currently takes to subscribe to Netflix's standard plan. With far more streaming competition in the marketplace from HBO Max, Peacock, Disney+, Apple TV+, and many others, cost-saving is becoming more important for individual streaming subscribers. These numbers strongly support that idea. Netflix said the following in a statement:
"2022 was a tough year, with a bumpy start but a brighter finish. We believe we have a clear path to reaccelerate our revenue growth: continuing to improve all aspects of Netflix, launching paid sharing and building our ads offering. As always, our north stars remain pleasing our members and building even greater profitability over time."
Bumpy would be an understatement. Due to a loss in subscribers, the company's stock plummeted, and Netflix was even sued over the whole thing. It got ugly, with layoffs that followed and budgets that tightened. So, the early numbers for this ad-supported tier are a much-needed bright spot.
What's next?
The big bombshell dropped by Netflix in its earnings report was the fact that Reed Hastings has stepped down as co-CEO of the company, leaving Ted Sarandos and Greg Peters as the new co-CEOs. Hastings, who co-founded the streaming service, will remain on board as an executive chairman. Be that as it may, this is another indicator that Netflix is changing along with the media landscape around it.
Netflix also predicts that revenue will grow by 4% in the first quarter of 2023, though they also anticipate fewer new subscribers in the current quarter. That said, the biggest of big changes will soon be rolling out as the company is set to begin cracking down on password sharing in an attempt to increase revenue. From the statement:
"Later in Q1, we expect to start rolling out paid sharing more broadly. Today's widespread account sharing (100M+ households) undermines our long term ability to invest in and improve Netflix, as well as build our business. While our terms of use limit use of Netflix to a household, we recognize this is a change for members who share their account more broadly. So we've worked hard to build additional new features that improve the Netflix experience, including the ability for members to review which devices are using their account and to transfer a profile to a new account. As we roll out paid sharing, members in many countries will also have the option to pay extra if they want to share Netflix with people they don't live with."
Between growth with the ad-supported tier and potential new revenue from the so-called "paid sharing," Netflix may have found a way to reverse its fortunes — at least for now.