Netflix: More price hikes cast shadow over potential ad-tier gains
Netflix is set to kick off the tech earnings season with analysts generally bullish as they expect boosted subscriber numbers due to the introduction of a new ad-tier and a crackdown on password sharing.
However there have been some warnings that more price hikes on the horizon could jeopardise subscriber loyalty.
The streaming powerhouse is expected to reveal a 7.7 per cent year-on-year revenue surge to $8.5bn (£7bn), according to consensus estimates from Refinitiv. Earnings per share are projected to rise by 12.7 per cent, reaching $3.49 per share.
Bloomberg analysts have forecast an increase of 6.1m subscribers after an addition of 5.9m subscribers in Netflix’s most recent quarter, largely thanks to a crackdown on password sharing.
“Netflix could be about to surprise on the upside with its quarterly subscriber numbers,” said Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown.
But she warned investor sentiment towards the company has dulled as the trading update approaches as it “could hide some difficult truths”.
“At some point, broader revenue growth is going to need to shine through – rather than purely relying on incremental increases from subscription price increases,” Lund-Yates explained.
In March 2022, the TV and movie streamer hiked up its prices for a second time in two years, taking its most popular plan up 22 per cent to £10.99 a month.
Netflix also introduced a new ad-supported tier last November at £4.99 per month in an attempt to lure back budget-conscious subscribers.
“Revenue-supporting initiatives like its ad-tiers and password sharing are poised to finally make a difference,” said Liz Duff, head of commercial and operations at media planning and buying agency Total Media.
She foresees Netflix’s results injecting fresh momentum into the company and, as video subscriptions face the chopping block in the cost of living crisis, the ad-tier will play a “key part”.
“Netflix has already shown a return on their tiered gamble, with average revenue per membership for its ad-supported plan exceeding the standard plan.
“It’s also benefiting from its first mover advantage, with other services like Disney and Prime trying to mimic this success with their own segmentation drives,” she explained.
However Group M, WPP’s media investment business, predicts a nearly three per cent decline in advertising 2023 for linear and digital TV.
“As viewing habits migrate toward a more digitised TV future, we expect streaming players such as Sky, ITVX and Netflix to ramp up investment, scale and advertiser transparency,” it said.
Netflix is planning further price hikes for its standard plans once the actor’s strike concludes, according to the Wall Street Journal. Most details are currently unknown.
This makes the ad-supported plan a valuable offering, not only catering to inflation-weary consumers but also affording brands increased opportunities within the burgeoning connected TV realm.
But Netflix need to take care to avoid annoying customers with price hikes, said David Poole, senior technology and media strategist at Publicis Sapient, a digital transformation consultancy.
“With data showing that teenagers and Gen Z as a whole are spending much more time on YouTube than Netflix, there is huge pressure to maintain subscriber engagement and any significant price increase will make it that much harder to rival YouTube,” he said.