Time to Netflix and Chill

YouTube is bigger than Netflix but not a head-on competitor. In streaming Netflix is the king and likely to stay that way.

According to Nielsen, streaming accounts for 40pc of total TV time in the US today, with Netflix and YouTube the clear leaders in direct to consumer entertainment. Collectively our two services account for almost half of all streaming TV watch time in the US. In H1 2024 (and despite headwinds from paid sharing) Netflix generated more view hours in the Nielsen Top 10 across film, series and licensed titles than all the other streamers combined. The challenge for so many of our competitors is that while they are investing heavily in premium content, it’s generating relatively small viewing on their streaming services and linear continues to decline.

Shareholder’s letter, Netflix, Q2 2024, 18 July 2024

The recently launched ads business is doing well.

We’re making steady progress scaling our ads business. Ads tier membership grew 34pc quarter on quarter, and we’re building an in-house ad tech platform that we’ll test in Canada in 2024 and launch more broadly in 2025.

Given this sustained progress, we believe we’re on track to achieve a critical ad subscriber scale for advertisers in our ad countries in 2025, creating a strong base to further increase our ad membership in 2026 and beyond. Our ad revenue is growing nicely and is becoming a more meaningful contributor to our business. But building a business from scratch takes time — and coupled with the large size of our subscription revenue — we don’t expect advertising to be a primary driver of our revenue growth in 2024 or 2025. The near-term challenge (and medium-term opportunity) is that we’re scaling faster than our ability to monetize our growing ad inventory. It’s why continuing to build our ad sales, measurement and tech capabilities is so important. Based on everything we’ve learned and our progress over the last 18 months — we’re confident that advertising will be a key component of our longer-term revenue and profit growth.

Shareholder’s letter, Netflix, Q2 2024, 18 July 2024

Latest news on the ad front was positive.

Netflix reported that its second year of upfront negotiations with advertisers generated a 150pc increase in ad sales commitments compared with last year. The ad commitments included spots for consumer products, technology, entertainment, auto, retail and fast-food restaurants.

In a blog post, Amy Reinhard, president of advertising at Netflix, said the ad sales commitments were in line with company expectations. However, Netflix did not cite specific dollar figures.

Netflix, which launched its ad-supported service option in November 2022, said it closed advertising partnerships for the upcoming seasons of “Squid Game,” “Wednesday,” “Outer Banks,” “Ginny & Georgia,” and “Love Is Blind,” in addition to live events such as “WWE Raw” in 2025, and this year’s Christmas Day NFL games.

Meanwhile, Netflix is “looking forward” to the launch of its in-house ad tech platform, which will be tested in Canada in November and launched globally in 2025.

“Over the last few months, we’ve hit great milestones for our ads business, including closing another successful Upfront market, building and implementing an expanded programmatic suite, enhancing our global measurement capabilities, and securing impactful global ad campaigns” .

Amy Reinhard, president of advertising, Netflix, 20 August 2024

Strategy – Buy, Hold, Accumulate Netflix

Netflix is far and away the leader in a market (streaming) with strong tailwinds. The business is innovative, with moves into ad-supported streaming, gaming, sports, and other areas. The ideal growth share grows larger every year and is small relative to its ultimate potential. Netflix ticks those boxes and is a superbly managed business.

Shares often rise strongly when something new is happening. The fast-growing ads business is an important ‘something new’ for Netflix.

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Netflix. NFLX (21 August 2024)