Executives at Netflix performed a very-public victory lap on Tuesday after the company revealed its triple-strategy of cracking down on password sharers, incorporating ads, and raising prices on customers did not stymie its growth during 2023.
On Tuesday, Netflix revealed its global paying subscriber base grew to a record 260.28 million customers, fueled by more than 13 million net customer additions during Q4 2023.
The customer additions blew through Wall Street estimates, which projected more-modest growth of around 9 million paid accounts. Also topping Wall Street expectations was Netflix's Q4 revenue, which increased to $8.8 billion, slightly more than the $8.7 billion analysts were expecting.
Shares of Netflix spiked in after-hours trading, with its per-share price listed just under $535, or around 9% higher than its close price of $492.19.
During an earnings video interview that was live-streamed on YouTube, executives at Netflix cited a strong interest in its original programming and licensed content for the bump in subscribers, including overseas viewership of "The Crown," which entered its final season. (Netflix's video interview replaces a conventional earnings conference call that other publicly-traded companies typically conduct after they disclose their financial earnings.)
"We're really thrilled with our engagement trends domestically and globally," Ted Sarandos, the co-CEO of Netflix, said during the interview. "This is really a story about viewing moving from linear television to streaming. The story has been constant, and it continues, and it's also a story about Netflix leading the way with professional film and television, and now games."
On the games side, executives said Netflix saw its highest engagement ever after announcing it would allow subscribers to play a trio of titles from Rockstar Games' "Grand Theft Auto" library.
"We're stoked by the performance of GTA," Netflix co-CEO Greg Peters said. "We had high hopes, but they exceeded even those high hopes...we were in the top mobile game downloads for several weeks, which shows it was not only big for us, but big numbers for mobile gaming as well."
The strength of Netflix's film, television and games library, coupled with a broader crackdown on password-sharing in the United States and other key markets, helped the company rebound from its subscriber losses and other business-related challenges in 2022.
The password-sharing crackdown — which Netflix executives refer to as a "paid sharing" strategy — has been particularly effective in helping the company recapture some of its lost revenue opportunities associated with freeloaders on its service, executives affirmed.
"We've operationalized that paid sharing product worth," Peters said. "It's integrated into everything we do...we think of this, essentially, as having built a more-effective engine for translating the entertainment value that we're creating for our members into revenue. It's critical to understand that the engine works on top of — and we see it working on top of — very healthy organic growth."
Most of that growth is coming from Netflix's business units outside the United States and Canada: The company added 5.1 million customers in the Europe, Middle East and Africa (EMEA), and another 2.9 million in the Asia-Pacific region (APAC), according to a review of the company's financial statement released this week.
By comparison, only around 2.8 million new customers came from the United States and Canada, where the company sees more of a return from its subscribers. Domestic ARPU (which it terms as ARM, or average revenue per membership) clocked in at $16.64 in the United States and Canada during Q4, compared with $10.75 in EMEA and $7.31 in APAC.
Executives didn't address the disparity in growth between regions, other than to say the company still saw plenty of room to increase its customer base.
"We've got hundreds of millions of qualified households out there that have yet to sign up for Netflix," Peters said. "There are many hours, billions of hours, of TV time that we are currently not winning."
A Raw Deal
One way Netflix believes it can lure more customers into the service is by developing or acquiring the rights to more content. And the company is betting big on one particular industry: Professional wrestling.
Hours before it released financial earnings, Netflix and TKO Group announced the streamer had secured the domestic broadcast rights to World Wrestling Entertainment's (WWE) flagship program "WWE Raw," starting in 2025.
When it moves to Netflix, it will mark the first time wrestling fans have live access to WWE Raw beyond the cable bundle since the program debuted on the USA Network in 1993. The Walt Disney Company's Hulu has offered next-day, on-demand access to the show for several years.
"WWE is sports entertainment, which is right in the sweet sport of our sports business, which is the drama of sports," Sarandos said on Tuesday. "This is 52 weeks of live programming every year. It feeds our desire to expand our live programming. Most-importantly, fans love it."
The arrangement will see Netflix pay $500 million per year over the course of 10 years to stream WWE Raw live on a global basis, and also includes a provision that allows Netflix to develop original programming around WWE storylines and characters. Outside the United States, Netflix will be able to offer streamers access to other WWE shows like "Smackdown" and marquee events like "WrestleMania" and "SummerSlam." (In the U.S., Comcast's Peacock streaming service has the rights to those shows and events until early 2026.)
Stanlei Bellan, the Chief Strategy Officer who works for omnichannel brand marketing firm Juice Media, thinks Netflix overpaid for the rights to Raw, which he views as a niche product. But the company stands to get a lot of bang for its buck, he proffered, because it costs less to license a live program that airs fresh content year-round when compared to the production costs associated with a feature-length film or 10-episode television series.
"That's the economics — they were willing to pay a little bit more, because it was less than what they would have to pay to get 52 weeks of fresh content," Bellan said.
Bellan said Netflix will likely experience a sudden bump in subscribers — the WWE fan base that will have to buy a subscription in order to watch the shows and events — and then potentially draw in more of an audience through the introduction of new characters and ancillary WWE-themed programs.
While some distributors might not be up to the task, Netflix has "proven, over and over, that they have a knack for creating and developing entertainment that appeals to the masses," Bellan said, suggesting that WWE might develop into a more mainstream product if Netflix can figure out a way to grow its audience, especially overseas.
"I think they're going to squeeze as much juice from this deal as they can," Bellan said.
Attracting ad buyers is a separate challenge: Bellan said some companies have been weary of advertising alongside WWE content, due in large part to controversial storylines. The issue is less of a problem with companies who want to come off as "cool," Bellan said, but if Netflix wants to attract more mainstream ad buyers, they might have to cast a wider net in terms of live sports rights.
On Tuesday, Netflix executives said the WWE deal shouldn't be an indication that the company is going to make bolder bets on live sports.
"WWE is sports entertainment...in terms of the deal itself, it has options, and it has protections that we seek in our licensing deals and with economics that we're super happy about," Sarandos said. "I would not look at this as a signal of any change to our sports strategy."
Bellan isn't convinced that will remain the case long-term, noting that Netflix has shifted its strategic thinking in the past.
"Netflix once said, we will never have ads," Bellan remarked. "And, now, we have it."