Over the 12-month period ending in June 2024, Netflix added in aggregate more than 39 million subscribers. It grew engagement over that same period by just 1%.
Are users watching less? Or do these new subscribers represent better monetization of an existing, not-growing base of users? That’s what MoffettNathanson wants to know as it took a magnifying glass to the OTT giant’s first half of 2024.
Global viewership details for Netflix in Q1 and Q2 were released by the streaming video Goliath, and for the first time a year-over-year trend can be seen.
For Senior Analysts Robert Fishman and Michael Nathanson, “outsized growth” in subscribers was already known thanks in part to a password-sharing crackdown and a lower-priced advertising-supported tier. This resulted in 16% year-over-year subscriber growth.
Yet, is Netflix growing engagement, something Fishman and Nathanson believe is vital?
As it asks the question, the MoffettNathanson analysts saw an interesting trend: an underperformance of new, original series in the first six months of 2024 was experienced by Netflix as acquired viewership experienced an uptick.
In fact, the top 20 most viewed acquired shows drove nearly a third of the category’s engagement — with content licensed from all major U.S. media companies contributing.
“This marks just one way in which Netflix’s library has grown more efficient,” Fishman and Nathanson say. “Netflix is also growing increasingly selective over which rights it acquires. This is seen in the decrease in titles available globally (with the company choosing to forgo or let lapse rights to content in select regions) and in acquired titles available increasingly nonexclusively (11 of those top 20 acquired shows are available in the U.S. on other streaming platforms in addition to Netflix). This may, however, also signal media companies being more selective over which rights they choose to sell to Netflix.”
With MoffettNathanson reiterating its “Neutral” rating on Netflix and a $570 price target, Fishman and Nathanson wonder if the lack of engagement growth is worrying. “For starters, if the lack of engagement growth is due to lack of real user growth, it implies that the subscriber growth we have seen has been simply improved monetization of an existing base – in other words, a de facto price increase,” they write. “The lack of engagement growth (and, as we will see, the shift away from new original engagement) may imply a lack of pricing power growth as well. Moreover, in addition to indirect implications for pricing power, engagement levels have a direct impact on revenues generated by Netflix’s growing ad-tier. Stalled engagement growth now may mean stalled ad inventory growth (per subscriber) as well.”
