Netflix Earnings: Will Supply Advantage Future-Proof The Streamer?

Friday, 19 July 2024, 8:55 am
Press Release: Parrot Analytics

Netflix kicks off this media earnings cycle shouting distance from its all time high share price.

It got there in part by cracking down on passwords, adding a new ad tier, aggressively increasing licensing deals, and above all consistently delivering a high volume of in-demand content to its 270M global subscribers.

A year removed from debilitating Hollywood strikes, with subscriber counts stalling and market caps plummeting across the industry, it is increasingly crucial to assess both the supply and demand for streaming content.

Netflix Originals Lead The Way

As of Q2 2024, Netflix accounts for one quarter of the world’s streaming original series. With new (or at least ‘new to you’) content necessary to mitigate subscriber churn, this volume gives Netflix a massive structural advantage. The next closest competitor in global supply share for original series is Amazon Prime Video at 9.0%, followed by Disney+ at 4.0%.

Netflix also leads the pack in demand share of original series, at 32.9%. Demand for Netflix original content outweighing its vast supply suggests the streamer provides strong value for its 270M subscriber base relative to the monthly fee.

Netflix’s biggest hit in Q2 2024 was the third season of Bridgerton. The Shondaland-backed series was the most in-demand streaming original worldwide for the quarter. While Netflix Originals are often one or two season wonders, Bridgerton is proof that the company can create home grown franchises that build an audience over time.

Power of Broadcast

Originals have been the core driver of Netflix’s subscriber growth over the years, and the streamer also excels at leveraging its competitor’s content to keep subscribers on the Netflix platform. Suits became the go-to example of this last summer, but another cost effective pillar of Netflix’s churn mitigation strategy is broadcast series.

In Q2 2024, broadcast series such as ABC’s Grey’s Anatomy, NBC’s Seinfeld, and CBS’s NCIS accounted for just 1% of the TV shows available on Netflix’s US catalog, but drew 7.1% of the total demand. By contrast, Netflix Originals from around the globe accounted for 67% of the US supply share and 49.8% of the demand share.

Old School Future Growth: Ads and Sports

Netflix’s announcement last quarter that it will not release subscriber data starting in 2025 carried the assumption that growth is dying down. If that is the case, how will Netflix keep its share price growing?

The company is turning to two backbones of the very traditional TV industry it has spent the last few decades upending: advertising and live sports.

Netflix’s ad tier is a clear answer for increasing revenue and profits. Even as the company’s ad-tier has grown slower than expected, brands understand the reach the world’s largest TV platform can muster. On a long enough timeline, the ad-supported tier is expected to generate higher average revenue per user (ARPU) than its ad-free compatriots as it amasses more cost-conscious users. Importantly, advertisements have always been a feature of sports programming, which feeds directly into Netflix’s other major strategic shift.

Sports and live events are one of the few areas where Netflix is still behind its key competitors, all of whom carry live major league sports in the US. Netflix will not be part of the NBA’s new highly touted media deal, but it secured Christmas Day NFL games starting this December. This fires a shot not just at its traditional competitors but also the NBA as a whole, which historically had Christmas Day to itself on the sports calendar.

WWE Raw will be the first weekly live programming on Netflix starting in 2025. Other high profile events between now and then include the Joey Chestnut-Takeru Kobayashi “Unfinished Beef” Labor Day Hot Dog eating contest, and the Mike Tyson-Jake Paul boxing match scheduled for November, which has been delayed once.

While Netflix executives long downplayed the need for live sports and events, their actions are showing this will be a key part of Netflix’s growth plan into 2025 and beyond.

From the outside looking in, sports entertainment and other major live events offer more immediate upside than the company’s long-term investment in gaming, which has not yielded material returns just yet.

Streaming Originals Growth Ticks Back Down

• Between the beginning of 2020 and Q2 2024, there has been a 296% increase in the global supply of streaming original titles as leading companies have prioritized DTC platforms and chased Netflix’s business model.
• However, the rate of growth for streaming original titles steadily slowed down in 2023, shrinking every single quarter of the year. Despite ticking back up in Q1 2024 this growth rate has now declined in five of the last six quarters.
• In other words, streamers are still making new shows, just not at the same clip as they used to. This slowdown is a combination of both major companies shifting business models and cutting back, with the sharper drop offs in Q3-Q4 2023 a direct result of the Hollywood labor strikes.

Netflix Streaming Original Supply Share

• Analyzing supply share is crucial for assessing a streamer's long-term viability.
• As recently as Q3 2021, Netflix accounted for 30.2% of all new streaming original titles released globally. Fast forward to Q3 2023 and Netflix’s share of new streaming originals worldwide was down to 14.7%.
• However, Netflix reversed this trend big time starting in Q4 2023, and has accounted for nearly a quarter of all new streaming original releases in two of the past three quarters. This coincided with Netflix’s first increase in originals demand share since before 2020.
• This was clearly the result of Netflix having a deep roster of new content in the can — something co-CEO Ted Sarandos emphasized repeatedly in 2023 — and a more global footprint than its competitors.

On Platform Demand Share

• While demand for original content drives subscription growth, library content is key for customer retention, and catalog demand is a good indicator of which SVODs consumers are most likely to use as a default ‘streaming home.’
• Netflix remained in first place here, but did tick down compared to Q1 2024.
• In Q1, Netflix led Max 18.8% to 16.1%. This 2.7% lead has been cut to 1.6% in Q2, due in part to the surging audience demand for the second season of House of the Dragon, and with it, Game of Thrones.

Global Streaming Originals Demand Share

• This chart shows how Netflix has staved off the challenge from its rivals when it comes to demand for original series, starting in Q3 2023 — just as the first effects of the strike were felt.
• New SVODs eroded Netflix’s lead from 2020 to mid-2023, but Netflix has mostly stemmed its market share losses since then, largely due to its supply advantage.
• Since Netflix’s global share of the supply of streaming originals is down to 24.9% in Q1 2024, 32.9% demand share should be considered an over-performance.
• Netflix is still delivering strong value to its subscribers especially with streaming originals — a key leading indicator of subscriber growth. It also means Netflix has room to raise prices without incurring significant subscriber losses.

© Scoop Media

Parrot Analytics

Global television demand measurement

Parrot Analytics is the leading global content demand analytics company for the multi-platform TV business. With the world's largest TV audience demand datasets, the company currently tracks more than 1.5B daily expressions of demand in over 100 languages from 200+ countries to reveal the content consumers engage with and watch the most across platforms.

As a trusted partner to some of the biggest media companies and content creators in the world, Parrot Analytics optimises content workflows in real time. The company's TV analytics products result in better production, distribution, acquisition and marketing decisions, as well as accelerated SVOD platform success.

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