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Netflix Reports Growth Amid the Backdrop of Two Strikes

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Netflix Reports Growth Amid the Backdrop of Two Strikes

Netflix added millions of subscribers in the second quarter and saw a rise in revenue, the company said on Wednesday in an upbeat earnings report that came at a moment when the entertainment industry is dealing with dual strikes inspired in part by the economics of streaming.

Netflix added 5.9 million subscribers to bring its global total to 238 million. Its revenue rose 3 percent, to $8.2 billion, from the same period last year, and the company also said it had $1.5 billion in profit in the quarter, a similar number to last year at this time.

The results were attributed to two policies that were introduced last year after Netflix’s first reported subscriber loss in 10 years: a crackdown on password sharing and a relatively new advertising tier.

The company said there had been scant resistance to its password sharing crackdown. It noted that revenue in each region in which its service was available was now higher than before the sharing restrictions were enforced and that new subscriptions already exceeded cancellations.

The new advertising tier that Netflix introduced in November is still a small component of the company’s business, but Netflix said it believed it would continue to grow. Membership numbers for its ad-supported tier have doubled since the first quarter.

“While we’ve made steady progress this year, we have more work to do to re-accelerate our growth,” the company wrote in its letter to shareholders. “We remain focused on: creating a steady drumbeat of must-watch shows and movies; improving monetization; growing the enjoyment of our games; and investing to improve our service for members.”

Comcast, Warner Bros. Discovery, Paramount Global and Disney will all report earnings in the coming weeks. But the optics for Netflix are especially complicated. Netflix has been on the receiving end of much of the vitriol surrounding the strike, primarily from writers who say the economics of the streaming era have eroded their working conditions and hurt their overall compensation. The company already contended with angry shareholders last month, when they voted to reject lucrative pay packages for the company’s top executives.

Netflix had little to say about the strikes, beyond noting that it had lowered the overall amount of cash it was planning to spend on content this year because of “timing of production starts and the ongoing W.G.A. and SAG-AFTRA strikes,” referring to the writers’ and actors’ unions. It acknowledged that its free cash flow expectations from 2023 to 2024 could “create some lumpiness” because there was no guarantee when the production of films and series would begin again.

Unlike traditional entertainment companies, which have seen their stock prices drop since the writers’ strike began in May, Netflix shares had increased roughly 50 percent. But they dropped about 9 percent in after-hours trading on Wednesday, perhaps prompted by lower-than-expected projections for revenue and sales.

During an investor conference call, Netflix’s co-chief executive, Ted Sarandos, did not directly answer how long the strikes could go on before the streaming service would run out of new content.

“We make deals all the time; we are constantly at the table negotiating with actors and producers and everyone in the industry,” Mr. Sarandos said. “We very much hoped to reach an agreement by now,” he continued, adding that he grew up in a union household.

Mr. Sarandos’s father was an electrician, he said, and he recalled how difficult it was for his family when his father was on strike.

Some of Netflix’s productions were able to finish before the start of the actors’ strike, which began last week. Other notable series like “Big Mouth,” “Cobra Kai” and “Stranger Things” were all scheduled to be in production but were shut down because of unfinished scripts. In the case of “Stranger Things,” the creators of the series, Matt and Ross Duffer, chose to stop filming because they could not continue write while on set.

“Writing does not stop when filming begins,” they wrote on Twitter in early May.

The company has already seen some benefits from the strike. Last month, Netflix reported it would be licensing original HBO shows from WarnerMedia, including “Insecure,” “Band of Brothers,” “The Pacific,” “Six Feet Under” and “Ballers.”

With subscriber numbers on the rise and profits holding steady, analysts expressed enthusiasm about the changes Netflix has made to its business.

“Netflix’s quarterly results demonstrated that the streaming company has a clear path to accelerate growth in both revenue and profit, and they’re executing it well,” Jesse Cohen, senior analyst at Investing.com, wrote in a report. He did caution that maintaining the pace of growth would be challenging in the face of “the saturation of the streaming industry and the variety of different options available, and the fact that the pricing is not necessarily significantly below the competition.”

Also concerning to some analysts is the fact that the short-term gains the company is likely to achieve because of the strikes could become a problem should they drag on. “Long-term though, the strikes could create a scenario of massive churn and lower ad revenue for streaming companies,” said Scott Purdy, the U.S. national media industry leader at KPMG.

But others are optimistic about Netflix’s advertising business, which is still in its early stages.

“They have everything that advertisers want,” Jessica Reif Ehrlich, a Bank of America analyst, said. “They have reach, they have scale, they have premium video content. They’ve been very creative and have come up with some very innovative offerings, like offering advertisers to be in the top 10 weekly shows. So it’s almost guaranteed reach.”

Netflix also announced Wednesday that it had removed its $9.99 advertising-free “basic” plan in the United States and Britain. Consumers who subscribe to this plan can keep it, but new subscribers will have to choose either the ad-supported plan for $6.99 a month, or one of two ad-free options that cost either $15.49 or $19.99 a month.



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