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Today, Netflix’s second-quarter transcript was officially announced.Unsurprisingly, the results weren’t quite as bad as Netflix had previously rendered.It is worth noting that Netflix also announced that it has reached a cooperation with Microsoft on the advertising business, which surprised everyone and at the same time wondered what the deep meaning behind this cooperation between the two parties is hidden.
High-cold Netflix, bowing to life
This quarter’s financial report shows that from April to June this year, Netflix lost a total of about 970,000 subscribers, operating income of $7.97 billion increased by 9% year-on-year, and it is also estimated that it will recover about 1 million customer growth in the third quarter.
Due to the better-than-expected data, Netflix’s stock price rose by more than 10% after the market, and the stock price re-stands at the $200 mark.
Netflix stock performance, picture from Google
The performance of this financial report also gave Netflix, which had been bloodbathed before, some respite. It’s been a really tough time for Netflix over the past six months.
Since its inception, Netflix has maintained steady growth in subscribers, firmly occupying the position of the streaming leader. In the hearts of many tech employees in Silicon Valley, Netflix also belongs to the wave of companies at the top of the pyramid. The recruiting style of “not bad money + high standards + high cold” once made everyone rush.
But now, with the continued loss of subscribers, Netflix has to step down from the altar. Inside the company, Netflix has already carried out two waves of layoffs, involving more than 450 people, and internal assessments, salary cuts, and business cuts have also followed one after another, making employees panic. At the user level, Netflix changed its attitude of turning a blind eye to user password sharing in the past, and began to crack down on password sharing, while also increasing subscription fees one after another.
For a time, the industry’s doubts about Netflix were everywhere. Many people think that after the epidemic, Netflix’s user growth has been overdrawn. With giants such as Amazon, Apple, Disney and other giants entering streaming media, Netflix’s market share is also being divided up by all parties.
This quarter, although the indicators exceeded expectations, the data was still ugly, mainly due to the “rotten” effect of the previous quarter. You must know that in the same period last year, Netflix’s users increased by 1.54 million, and its net profit increased by 87.6%. This year, it not only lost about one million customers, but its net profit only increased by 6.5%.
Netflix subscriber growth, image via Bloomberg
All indications are that Netflix has not come out of the decline, it must seek a breakthrough in the predicament. And recently, Netflix has also taken the most necessary step – accepting advertising.
As user growth continues to be sluggish, Netflix, which has insisted on refusing advertising business for more than 20 years, began to advertise in order to make a meal. During the earnings call, CEO Reed Hastings said that in addition to its regular ad-free subscription service, Netflix will offer a low-cost ad-supported subscription service that will go live in early 2023.
A giant marriage that looks like “eight poles can’t be beat”
So, who is the partner of this Netflix advertising business?
Keep in mind that Netflix still has more than 220 million subscribers worldwide, and each user watches its content for more than 3 hours a day on average. Analysis shows that the introduction of advertising can bring Netflix at least 3 billion US dollars in revenue each year, which is undoubtedly a big cake that advertisers want to compete for.
When Netflix first revealed this plan last quarter, many people were wondering which digital advertising big account this big pie will fall on? Google, Meta, Roku, etc. became the most vocal players at the time.
But last week, the official reveal of the mystery surprised everyone: the popular players lost one after another, and the partner Netflix finally selected was Microsoft, the big brother that has almost nothing to do with its own business.
The picture is taken from the Netflix official website
On the surface, Microsoft is clearly not the most ideal advertising partner for Netflix. From a technical point of view, advertising has never been Microsoft’s strong point. In 2021, its advertising revenue will only account for about 6% of its total revenue. At the same time, Microsoft has never set foot in the third-party advertising technology business, and its revenue mainly comes from Bing search and LinkedIn. Wait. At the business level, in addition to the game business, which is barely edged, Microsoft has been basically insulated from the TV media industry for so many years.
Therefore, compared to Google, which already has mature operating experience in Youtube, or Meta, which sells advertisements for a living, Netflix’s choice to join hands with Microsoft is somewhat bizarre.
For this cooperation, neither Netflix nor Microsoft has made much explanation at present, but from Netflix’s official press release, we seem to be able to find some considerations for Netflix to choose Microsoft.
Netfilx mentioned in the official announcement, “Microsoft has the ability to support all of our advertising needs, and we will work together to build new ad-supported products.” , “More importantly, Microsoft provides technology and technology over time. Flexibility to innovate in sales.”
From this, it seems that what Netflix is looking for this time may be a partner like Microsoft that has certain advertising technical support capabilities, but is not a “old cannon” in the streaming media advertising business, because only in this way, it Only then can we master the right to speak in product construction and development.
As we all know, in the 24 years since its establishment, Netflix’s main source of revenue has been content-driven membership subscription services. Not letting ads affect the user’s movie viewing experience has been an operating principle that Netflix has adhered to since the beginning.
When Netflix now “puts down” to accept ads, they may not want to be pushed by advertisers at the expense of users, but want to take the initiative to introduce ads themselves. Therefore, from this perspective, the more mature advertisers in the industry are, the less suitable they are for Netflix.
But from another perspective, choosing Microsoft is also a risky move for Netflix. After all, after the epidemic, the competition between streaming media has entered a white-hot stage. Before Netflix, Disney+, Hulu, NBCUniversal’s Peacock Video, and Warner’s HBO Max have all launched or are planning to launch low-cost subscription services with ads this year.
HBO Max has launched an advertising version of the low-cost subscription service
Therefore, for Netflix and Microsoft, how to quickly formulate product plans to compete with many peers for advertisers and platform users is the next problem they need to solve.
May be laying the groundwork for the “Century Acquisition”
In addition to the consideration of “autonomy” at the advertising business level, many people also believe that Netflix’s choice to cross-border marriage with Microsoft is actually a hidden mystery.
One of the boldest guesses is that Netflix may be considering a future acquisition by Microsoft.
Such speculation is not unfounded. For Netflix, among the giants that can afford hundreds of billions of dollars in acquisition prices and are not subject to regulatory constraints, Microsoft may be the most suitable funder. The powerful Google’s Youtube and Amazon Prime Video all have direct competition and overlap with Netflix’s business. If they are considered to be acquired by them, they may not be able to cross the anti-monopoly barrier. If Microsoft acquires Netflix, it will not only provide continuous blood transfusion for Netflix, but also help Netflix’s content expansion.
As we all know, Netflix has been thinking about expanding its game business recently. In November last year, Netflix officially launched Netflix Games, changing some of its own film and television IPs into mobile games. But after nearly half a year of operation, the overall response is still flat. But if it joins hands with Microsoft, with the strong help of the Xbox team, Netflix will no longer have to invest a lot of energy and time to build a research and development team from scratch, and at the same time, some Xbox game IPs will be filmed.
Picture from Netflix official website
For Microsoft, the acquisition of Netflix also has important strategic significance. According to Netflix’s annual report, the company’s cloud computing is basically supported by AWS. Once the two sides form a cooperation, Microsoft can take advantage of the trend to “snatch” Netflix’s cloud business from Amazon.
On the other hand, for Microsoft, Netflix will also open up a new field of streaming media for the company to attract a wider and younger audience, such as Netflix’s well-known IP series such as “Stranger Things” and “The Umbrella Academy”. It can bring traffic to the game business to a certain extent.
But at present, this acquisition is still in the rumor stage. Analysts believe that, given that Microsoft’s acquisition of Activision Blizzard has not been completed, it may take at least 3-5 years to acquire Netflix.
Netizens have mixed reactions to this strange and imaginative cooperation between Netflix and Microsoft.
Some people think that this has clearly revealed the acquisition signal, and they are looking forward to the future Xbox games being filmed and brought to Netflix.
Image via Twittier
But some netizens also made it clear that Netflix after advertising will go down the altar and will consider canceling the subscription. After all, you have to watch ads anyway, so why choose Netflix.
Image via Twittie