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Netflix tops 200m subs

January 20, 2021

Describing 2020 as “an incredibly difficult year with extraordinary loss for so many families,” Netflix’s Q4 results show that with 8.5 million paid net additions in the quarter, it crossed the 200 million ‘paid memberships’ mark for the first time.

“For the full year, we added a record 37 million paid memberships, achieved $25 billion in annual revenue (+24 per cent year over year) and grew operating profit 76 per cent to $4.6 billion,” it says in its Letter to Shareholders.

For the full year, the 37 million paid net additions represented a 31 per cent increase from 2019’s 28 million paid net adds.

“We’re becoming an increasingly global service with 83 per cent of our paid net adds in 2020 coming from outside the UCAN [United States and Canada] region. Our EMEA region accounted for 41 per cent of our full year paid net adds, while APAC was the second largest contributor to paid net additions with 9.3 million (up 65 per cent year over year),” it reports.

“Another bumper year of record net adds and exceeding 200 million subs is a huge achievement,” notes Paolo Pescatore, TMT analyst at PP Foresight, who suggests the next 100 million will likely take longer to achieve given the “avalanche” of new players.

“Netflix starts the year as the undisputed video streaming market leader and I fully expect it to remain so throughout 2021, despite fierce competition,” he says. “No doubt, an intense battle lies ahead for viewer’s attention. Netflix has far more to lose given its huge base while rivals are only starting to get going. Originals will be a key differentiator,” he advises, noting that while, production has slowed down during the pandemic, this is expected to increase significantly during the year.

“There will be casualties,” he warns. “Viewers will have to make tough choices as they can’t afford all of the streaming services, including those for music and games. It will be many years before many streaming services turn a profit. All are placing huge bets and will be loss leaders for years.”

“Netflix has a lot of runway left in subscriber and revenue growth; licensing and merchandise through ownership of big IP, further price rises, move into new content genres and business models as well as be a key channel for theatrical releases with the absence of users going to the cinema,” he concludes.

According to Dave Castell, GM Inventory and Partnerships for EMEA, The Trade Desk, as the pandemic stretches on, TV streaming services have offered vital respite. “Recent hits like Netflix’s Bridgerton, which swept global audiences up and carried them off to a world of brightly coloured ball rooms and corset clad socialites, went down well with cooped-up audiences in dire need of escapism,” he notes.

“The continued delivery of premium original content is crucial for Netflix if it is to keep posting positive results like these, but that task is set to get much harder thanks to the growth of ad-funded services like NBC’s Peacock, which recently won the rights to The Office, Netflix’s most-streamed show in 2020.”

“While the shift to CTV continues to snowball, with recent data from The Trade Desk showing 27 per cent of US cable TV subscribers are planning to cut their cords by the end of 2021, our data also shows that in both the US and the UK, consumers are unwilling to shell out too much on streaming services. Audiences want great content, but are more likely to prefer free or low-cost streaming with ads over higher subscription fees, suggesting Netflix’s recent price hikes may impact its next earnings announcement.”

“The era of ad-funded streaming is here and Netflix will need to keep a close eye on players like Peacock which may impact its subscriber growth through 2021. The platforms Execs would also do well to consider relevant local European streaming services and broadcasters like Channel 4 and Discovery+, which are now truly ready for that battle to attract consumers’ and savvy advertisers’ attention with locally-commissioned, super-relevant content that viewers and advertisers love,” he suggests.

Commenting on the Results and subsequent analyst interview, media and tech analyst Ian Whittaker suggests that the company still thinks there is a lot of room to grow. “What was clear from the comments in the transcript is the belief that is more room to grow both the subscriber base, and the percentage of time spent watching Netflix. Management said they are 60 per cent penetrated in North America but that Netflix makes up less than 10 per cent of viewing time, suggesting a metric they could focus on. Markets such as Europe and APAC still have room to grow, although the competition is increasing.”

He says it doesn’t feel like there is much appetite to get into new business models. “Netflix management made clear they a more aggressive push into areas such as theatrical distribution and transactional premium Video on Demand (VoD) was not seen as a priority when there were still considerable opportunities in their existing model. Although it was not asked, it also suggests the idea Netflix may launch an advertising-funded tier probably is not going to happen any time soon, especially given what they disclosed on subscriber viewing.”



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