Netflix acknowledged the punishing landscape that is streaming today but — even as some now question the entire model — insisted it’s a good business if you’ve got “strong execution and focus” and it does.
“Consumers have so many amazing entertainment choices,” it said, calling out its largest rivals Disney, Comcast, Paramount Global and Warner Bros Discovery “with their large content libraries and creative expertise — [who] are now focused on profit so they can build sustainable, long-term streaming businesses.” Big-tech rivals Apple, Amazon and YouTube, “with their broad reach and deep pockets, continue to invest heavily to grow their streaming revenues,” read its letter to shareholders alongside quarterly earnings.
“Combined with Apple’s video initiatives, there’s quite a competitive battle happening,” Netflix said. “But while streaming is intensely competitive, we’ve shown that with strong execution and focus, it can be a great business. Long-term success takes strength in both entertainment and technology, a combination that’s not been required of large media or tech companies in the past.”
Netflix is the first and biggest streamer and therefore has had significant first-mover advantage. It’s much less levered than other big media competitors and has a fountain of free cash flow — a metric prized by Wall Street and one that’s been dwindling at its rivals. Netflix said anticipates an estimated $5 billion of free cash flow this year.
Things admittedly got dicey coming out of Covid, and the streamer posted its first subscribers loss in years in the spring of 2022. That event triggered a major about-face, shifting the entire industry to focus on profitability instead of subscriber growth.
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It was a sobering time, executives noted on a video interview posted to its website after the numbers. Netflix reined in spending, saying then it planned to keep the number flat for a few years, noted CFO Spencer Neumann. “When our revenue slowed in early 2022, we said we would keep [spending] roughly flat, and that is what we have been doin g… with the lumpiness we talked about” coming out of Covid, and now, with Hollywood strikes, he said. But as revenue accelerates — from a recent password-sharing crackdown and a new ad-supported tier — “we hope to start ticking up our cash spend on content again” in the third and fourth quarters. He didn’t give any dollar figures, but said, “We want to do it responsibly.”
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Co-CEO Ted Sarandos was definitive that content spending will not include live sports, save for events that can boost other “sports adjacent” programming. A celebrity golf match with Formula 1 drivers and professional golfers “is something we’re excited about,” he said, as a promotional tool for series Formula 1: Drive to Survive and Full Swing. Others include Tour de France: Unchained and Quarterback.
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The costly economic model of live sports licensing is too difficult, Sarandos said, preferring Netflix “to introduce a brand-new audience to a sport that has been around for a long time. And you do that through exceptional storytelling, not through the liveness of the game.”
Nor will Netflix start licensing its content to others, he said in response to a question by BofA Securities analyst Jessica Reif Erlich. That just “isn’t too exciting.” With the syndication and home video markets contracting, he prefers to let content linger on the platform and sometimes pop — like did recently when Extraction 2 hit.
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