As a longtime Netflix customer, I can’t say I’m excited about the opportunity to stream professional wrestling. Even if I tried, I doubt I could conjure a spectacle more disagreeable to my general constitution than steroid addicts in leotards pretending to beat one another with folding chairs.
But as a Netflix stockholder (through index funds) I can safely assume the company knew what it was doing when management decided to pay $5 billion for exclusive rights to content from World Wrestling Entertainment. (The figure comes from Bloomberg. The numbers weren’t publicly disclosed.)
The deal, unveiled just hours ahead of earnings, finds Netflix stomping obnoxiously into live entertainment via “Raw” and other ridiculous shows centered around fake fights that double as a gratuitously violent soap opera. The pay-per-view content will apparently be free for existing Netflix subscribers. Again, that’s not value added for this customer, but to each his own.
As Bloomberg helpfully explained in the above-linked article, “Netflix has now committed to offering three hours of live wrestling a week starting next year,” and although WWE “isn’t exactly a sport” given that “most of the storylines are scripted,” it nevertheless “draws a consistent live audience akin to a sporting event,” which Netflix “hopes will bring in millions of loyal WWE viewers,” thereby delivering “a boost for its fledgling advertising-supported plan.”
That was the backdrop for Netflix’s Q4 results on Tuesday, when the company said paid net adds were a huge 13.12 million in Q4. That marked the best fourth quarter ever, and easily topped the 8.9 million analysts expected. Indeed, it was the most since the surge that accompanied the onset of the pandemic.
Recall that the company’s Q3 results were likewise robust. Paid net adds beat by more than two million last quarter. So, this marks two blowout beats in a row, at least on one key metric.
For the full year, Netflix added 29.5 million paid subscribers. For context, they added 36.6 million in 2020. In 2022, they added just 8.9 million.
The stock’s obviously up big versus the crash lows seen in mid-2022, when the post-COVID hangover drove the shares down ~75% from the November 2021 “everything bubble” highs. Since the mid-2022 lows, the stock’s nearly tripled.
Last year, the company embarked on an ambitious — and ultimately successful — plan to crack down on password sharing. “We believe we’ve successfully addressed account sharing, ensuring that when people enjoy Netflix they pay for the service too,” Tuesday’s shareholder letter said. “At this stage, paid sharing is our normal course of business.”
In addition to the paid sharing program, Netflix raised prices in 2023 and launched ad memberships which accounted for 40% of Q4 signups in the relevant markets. Ad-tier subscriptions grew 70% QoQ after rising the same 70% sequentially in Q3. Two weeks ago, the company’s advertising chief said the ad product hit 23 million monthly active users, up fairly dramatically in just two months.
On the top-line, Q4 revenue of $8.83 billion was a beat. The 12% YoY increase counted as the quickest top-line growth since the stay-at-home boom. That said, the Q1 2024 guide ($9.24 billion) was slightly short of consensus.
“If we continue to execute well and drive continuous improvement — with a better slate, easier discovery and more fandom — while establishing ourselves in new areas like advertising and games, we believe we have a lot more room to grow,” the company declared.
In the press release announcing the WWE deal on Tuesday, Bela Bajaria, Netflix’s Chief Content Officer, said the company’s “excited” to welcome WWE’s “huge and passionate multigenerational fan base.”
Mark Shapiro, president of WWE’s parent group, described the partnership as a “transformative” marriage of Netflix’s “extraordinary global reach” with WWE’s “can’t-miss” programming.
I see this is a very interesting partnership from a content strategy perspective, and I wonder if it begins opening up other partnerships. Most traditional networks have gotten their teeth kicked in with their streaming platforms (Peacock, Paramount+, etc.) and continue to lose money, while the cost of content production increases in the face of declining linear TV subscribers – all of which is a losing proposition for Network TV (CBS, Fox, ABC, NBC) and cable networks (USA, TNT, TBS, etc.).
Is there an opportunity for networks and other content production studios to establish relationships with streaming platforms that already have scale and an installed user base (Netflix, Prime, Disney+) to license their content (and possibly live event broadcasts) exclusively, while still broadcasting to the existing linear TV audience? To me this accomplishes multiple goals for both parties: it can help spread the costs of content production, for streamers it broadens their content portfolio for existing users, and can be a differentiator to attract new users to drive subscriber growth, and for the content producers it helps them achieve viewership scale and insulate their business against cord cutting.
I suppose it ultimately comes down to the question of: would they rather have a small piece of a bigger pie, or vice versa? And I’m quite certain there are dynamics I’m not accounting for or aware of, but the approach of “if you build it, they will come” for streaming platforms was clearly wrong.
Interesting thoughts Jbona. I wonder if placement deals would end up lowering the cost of creating enough new content to keep viewers. The need for a constant stream of new shows turned out to be the Achilles Heel of Disney+ despite their deep library of old films and shows.
Jbona, that’s what it used to be. Netflix had deals with the networks. Then, the networks tried their own subscription services. A quicker pendulum than I would have expected if they come crawling back to nflx.
I realize that’s the old model, what I’m wondering is if a direct partnership where they actively work together on the production and distribution of new content, as well as viewership acquisition, rather than the streaming platforms simply gaining access to the library would be beneficial to both.
New customer acquisition has been a key problem for the networks and the established streamers as the market has matured and fragmented. Consumers are becoming overwhelmed with streaming options, having likely hit a saturation point as evidenced by Disney folding Hulu into Disney+ and shuttering it, and consumers are gravitating toward large established platforms, so it’s fair to assume consumer demand for more streaming platforms is waning, even as cord-cutting continues. In that environment, a deeper partnership between established content producers (legacy TV networks) and streaming platforms with established scale may make more sense than trying to capture the longtail of consumers with proprietary platforms.
Meanwhile, take a gander at the results from TXN today. Their products are used at all levels of products in many industries so they are a much better bellwether of the economy than AI chip vendors.
The company’s forecast along with the 3M results suggest that the Fed’s goal of cratering the economy without harming corporate profit margins may be achievable. Too bad about the damage to housing and office market though.
Waves of inventory correction have been rolling through semis, with computers, consumer electronics, IoT, networking somewhere around the end of it, industrial in the middle of it, and automotive somewhere around the start of it. That’s my sense of things, anyway.
It’s a cyclical group that is traditionally bought when things are awful and getting worse and the stocks look expensive, and sold when things are great and getting better and the stocks look cheap. If one bought MU INTC AMD a year ago, maybe it’s time to shift to the analog semis now?
Well, we’ll see what the other reports bring.
T’aint just the beginning in analog. ADI and TXN sell to many industries unlike some much more auto-focused chip producers like NXP and such. So they are a pretty good read of the wider economy versus the niche producers of AI chips.
Have never been interested in let alone a fan of WWE and its variants. Seems like it would be cheaper still just to use animation and AI to produce your fighting-related soap operas, with no loss in fidelity or randomness.
Come on, we all know this isn’t wrestling, it’s [fake} “wraslin’.” How many people will watch it every day with a more serious new football league a comin’? Next, they will try to restart Roller Derby, although even ESPN couldn’t find an audience for that one. The more choices people are given for TV reception, the less economical each will inevitably become. Cable is full of 200 kinds of infomercials because they are trying to fill time and their aren’t enough creators for actual shows. Neither are there enough creators just for the networks and the bulk of streaming content is reruns. Sadly, TV is finally becoming what was it was characterized by Newton Minnow in 1961, “A great wasteland.” In 1900 there were 2000 breweries in the US. In the 1960s there were about 15 or so. Now we are back in the 100s. There is a new liquor store in KC that claims to sell 2500 beers. How many of each one gets sold weekly? Cable will be back after it loses some weight and gets five reasonable versions of itself. All cable will be streaming however.