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Netflix is adding new subscribers at a torrid pace, as its password-sharing crackdown continues and as it makes moves that could push subscribers toward its nascent advertising tier.
The company reported 9 million new subscribers, with revenue of $8.5 billion and operating income of $1.7 billion. The company had reported 5.9 million new subscribers last quarter, thanks in part to its crackdown on sharing passwords.
Wall Street estimates for its Q3 had been for $8.5 billion in revenue, operating income of $1.9 billion, and net adds of 5.9 million subscribers.
Wall Street has taken a muted approach to the streaming giant since its blockbuster Q2 earnings report, as concerns about the Hollywood strikes and the slow development of the ad tier weighed on the company.
Netflix acknowledged the uncertainty in its quarterly shareholder letter.
“The last six months have been challenging for our industry given the combined writers and actors strikes in the US,” the letter said. “While we have reached an agreement with the WGA, negotiations with SAG-AFTRA are ongoing. We’re committed to resolving the remaining issues as quickly as possible so everyone can return to work making movies and TV shows that audiences will love.”
The third quarter was an important one for the company, led by co-CEOs Ted Sarandos and Greg Peters, as it rolled out its password-sharing crackdown in new territories and launched expansions of its advertising tier. On Tuesday in New York, Netflix ad sales executive Peter Naylor announced new ad offerings, including the ability for brands to sponsor individual shows, and sponsorships in live programming.
The first live event to feature sponsorships will also be Netflix’s first foray into live sports, which it is calling The Netflix Cup. The event will see F1 drivers and PGA Tour golfers pair up and compete in a live golf match in Las Vegas. Notably, sponsors will be integrated into the broadcast, meaning that even users on Netflix’s non-ad tiers will see them.
Earlier this month, Netflix also shook up its C-suite, with Peters tapping company veteran Amy Reinhard as president of advertising, Eunice Kim becoming CPO and Elizabeth Stone named CTO.
For Q4, Netflix projects its revenue to rise to $8.7 billion, but its net income to fall to $956 million. It expects paid subscriber additions to be similar to the 9 million in Q3 “+/- a few million.”
While Netflix has faced stiff competition from new streaming services over the last few years, the willingness by entertainment companies to license their shows to the service (i.e. Suits and Star Trek: Prodigy) was addressed in the letter.
“As the competitive environment evolves, we may have increased opportunities to license more hit titles to complement our original programming,” the company wrote. “We believe this will deliver additional value for our members (i.e., engagement), as well as for rights holders who benefit from the increased awareness and revenue that Netflix delivers, in addition to the new life that success on Netflix can drive (e.g, Friends, The Office, a new series from the Suits universe).”
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