Streaming giant Netflix reported impressive full year financial results this morning, reporting that its subscriber count has passed 200 million globally. And as the company continues to grow at an impressive rate, executives said the best path to further growth is to stick with its ad-free subscription model, dampening speculation that the service might release an ad-supported tier soon.
The growth of Netflix’s subscription base was made more impressive by the fact that it raised subscription prices in major markets, including the US and UK. These two factors combined help revenues in Q4 climb 24 percent year-on-year to $6.6 billion. Global revenues meanwhile reached $25 billion, with profits reported at just under $2.8 billion.
These results suggest Netflix is starting to answer the major questions posed of its SVOD model. Historically the company has issued debt to finance its pricey content acquisition, allowing it to tempt in new subscribers while keeping subscription prices low. But Netflix said in a letter to investors that it no longer needs to issue debt to finance content investment, marking a turning point for the business.
And with its SVOD-only model paying dividends, Netflix says it is not exploring other revenue opportunities. When asked about the prospect of releasing new films on a pay-per-view basis (as competitors like Disney+ and HBO Max have trialled), Netflix chief operating officer Greg Peters said that “we really believe that from a consumer orientation, the simplicity of our ad free, no additional payments, one subscription is really, really powerful and really, really satisfying to consumers around the world. And so we want to keep emphasizing that.”
Industry analyst Ian Whittaker said the results mean that the prospect of an ad-supported Netflix tier is unlikely to materialise anytime soon. “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,” he said. “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.”
That’s not to say Netflix’s stance won’t ever change. Paolo Pescatore, tech, media and telco analyst at PP Foresight said that an intense battle for viewer’s attention still lies ahead, and that while there is still room for subscription growth, new business models would also help Netflix stay ahead of its competitors.
Ian Whittaker agreed that Netflix’s lead in the streaming wars is far from assured. “Competitor SVOD services such as Disney+ have focused first on North America, which is their natural home market, and are only now starting to push aggressively into the wider world,” he said. “These competitors also have more cash than Netflix. The key question is whether consumers keep multiple streaming services at a time when consumers are facing increasing economic pressure and strains on the household budget.”
If increased competition makes it harder for Netflix to find further subscription growth, the potential for an ad-supported tier to draw in subscribers and boost revenues may be too tempting for Netflix to ignore.
