NetflixNFLX214.50 $Buy
Microsoft CorporationMSFT252,94 $
Why Netflix needs a version with ads
In the spring, Netflix for the first time in the 7 years faced with the outflow of subscribers. The company lost 2 million subscribers compared to the previous quarter. But if you subtract new subscribers from the losses, then the final losses will be significantly lower - almost 200 thousand people. Although it's still embarrassing.
Financial performance compared to the same period a year earlier was also disappointing.: revenue growth slowed to 9,84%, and the profit fell by 6,44%.
Operating results at the end of the first quarter, million dollars
| Users | Net inflow | Revenue per user | |
|---|---|---|---|
| USA and Canada | 74,6 | −0,6 | 14,9 $ |
| Europe, Middle East and Africa | 73,7 | −0,3 | 11,6 $ |
| Latin America | 39,6 | −0,4 | 8,4 $ |
| Asian-Pacific area | 33,7 | +1,1 | 9,2 $ |
One of the key reasons is the price. There are now many streaming services in the US, and Netflix is the most expensive of them. Due to the outflow of subscribers, the management of Netflix decided to, what is worth experimenting with the cheaper version, in which there will be advertising. Maybe, this will allow us to return to the growth of indicators.
Often talk about account sharing as a major factor, disturbing netflix, but I must say, that this factor for many years did not particularly hinder the company.
Furthermore, Netflix's experiment with bans on account sharing in Spanish-speaking countries - Costa Rica, Chile, Peru - leads to a wave of unsubscribes and the departure of users to competitors. So it's unlikely, that a campaign with passwords will lead to significant successes: they, who shares passwords, rather refuse the service, than they will pay more.
The company's management also talks about the prioritization of the quality of products over the quantity.
Subscription price in the US for a month
| Disney+ | 8$ |
| Apple TV+ | 5$ |
| Hulu | 13$ |
| HBO Max | 15$ |
| Amazon Prime Video | 9$ |
| Paramount Plus | 10$ |
| Netflix | 20$ |
8
Is Microsoft right as a partner for Netflix?
Became known, that Netflix is discussing the introduction of an "advertising version" of its service by cooperating with telecom giant Comcast (NASDAQ: CMCSA) and parent company Google Alphabet (NASDAQ: GOOGL).
In cooperation with these companies there was a reason: both have vast experience in the field of digital advertising.
Facts against agreement: they compete with Netflix in the streaming field. Comcast aggressively develops its own streaming service Peacock, and YouTube, owned by Alphabet, - Indirect competitor to Netflix, and it also has its own paid subscription.
Microsoft has no streaming services and is not yet foreseen.. So there is no conflict of interest..
What Microsoft will get out of it
Microsoft itself bought the platform for online advertising Xandr more than six months ago from the telecom holding AT&T (NYSE: T) — just the type of service, suitable for Netflix, with online connection.
Most likely, Microsoft wants to experiment with the platform and increase its advertising revenue. Now they give 5% from the entire revenue of the company: advertising on the Bing search platform, on LinkedIn and on the Xbox gaming platform.
At all, Microsoft and with the growth of revenue and profits everything is very good, but from the point of view of business diversification, experiments with advertising will be quite justified..
What Netflix Shareholders Can Expect
This is a massive experiment., so results may vary..
Probably, Microsoft is determined to work out all possible technological solutions for Netflix and, perchance, she will be able to find a suitable Netflix option, which will create a well-optimized advertising version of the subscription and retain the company's audience. But there are no details yet., how will it work.
The problem here may be in the licensed content. Licensed content is 56,1% from all items, available on the Netflix platform.
In its content, Netflix can put any kind of advertising and in any way, but for other people's series you need to get permission, and for this you will have to communicate with the management of companies, movies and series that Netflix licenses.
As a result, the cost of licensed content for it may increase by 15-30%. And that's just really bad.: to license other people's content, Netflix spent $ 13.79 billion in 2021. Respectively, a 15-30% revision of the value of contracts will mean an increase in costs for the company in the range of 2-4 billion per year or even more, that risks devouring from 1/3 up to 2/3 its operating profit. Not a fact, that the increase in subscribers sufficiently compensates for this loss.
The market reacted positively to this news.: Netflix shares even rose by 8%, and Microsoft has 1%. But what will come of the cooperation between the two companies?, It's not clear yet. Expected, that advertising Netflix will appear in 4 quarter of this year, so somewhere in the first 3 2023 we will be able to evaluate the first results.
