Netflix is ​​set for the slowest revenue growth as the ad plan struggles to gain traction

Netflix Inc. is expected to report the slowest quarterly revenue growth on Thursday as its ad-supported plan struggles to attract customers in the saturated US market, which could pressure the company to roll back content spending this year.

The streaming pioneer was reeling under pressure from consumer spending, rising production financing costs and increasing competition from Disney+ and Amazon Prime.

It has pinned its hopes on launching the ad-supported tier, but analysts say they haven’t seen a wave of sign-ups.

The company is expected to add 4.5 million subscribers in the fourth quarter – the lowest addition for the holiday period since 2014. It added 8.3 million subscribers a year earlier.

Analysts say the $6.99 per month ad plan doesn’t have access to all titles and isn’t cheap enough to gain a large number of customers in the US and Canada.

“Given the saturation of the market, the variety of different options available, and the fact that prices aren’t necessarily significantly lower than the competition, there are some challenges in achieving these subscriber goals,” said Jimmy Lumley, an analyst at Third Bridge. .

That’s likely to draw focus to Netflix’s massive content spending, which chief financial officer Spencer Newman said in July would total about $17 billion annually over the next two years. “When debt was cheap, you could go and borrow a lot of money and invest it in content,” said Shahid Khan, partner and global head of media and entertainment at Arthur D. Little.

“Given current interest rates, Netflix will have to be very selective about what greenlights content and how it will be funded.”

For comparison, rival Walt Disney expects 2023 financial content spending in the low $30 billion range, while Paramount Global expects spending of less than $10 billion. Disney does not split content expenditures between streaming and its other divisions.

Context
Netflix suffered massive subscriber losses in the first six months of 2022 due to fallout from the conflict between Russia and Ukraine and a weak economy, forcing the streaming pioneer to switch to advertising in a move it had long resisted.

It returned subscriber growth in the third quarter, but its stock, an investor favorite during the years of rapid growth, still ended the year down more than 50%.

The company’s revenue is expected to rise just 1.7% to $7.84 billion in the October-December quarter, according to Refinitiv. This would be the lowest since it went public in 2002.

“As overall streaming growth has leveled off, so have most of the more mature streaming platforms,” Moffett-Nathanson said, adding that Netflix’s reach fell 200 basis points in the quarter.

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