As expected, Netflix has experienced a material benefit from many societies being placed under lockdown thanks to the on-going coronavirus pandemic.
Revenues for the three months ending March 31 stood at $5.768 billion, a 27% year-on-year increase for the quarter, while the number of subscriptions globally was up 22.8% to 182 million. With many societies forcing citizens to stay at home for the vast majority of the day, it is unsurprising Netflix is benefitting from the current situation.
Interestingly enough, Netflix also spent far less over this three-month period on marketing activities than it had before, year-on-year 18% less in fact, though any gains here were partly offset by the additional $81 million which was allocated to technology and development.
“At Netflix, we’re acutely aware that we are fortunate to have a service that is even more meaningful to people confined at home, and which we can operate remotely with minimal disruption in the short to medium term,” Netflix said in the letter to shareholders. “Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth.
“In our case, this is offset by a sharply stronger US dollar, depressing our international revenue, resulting in revenue-as-forecast. We expect viewing to decline and membership growth to decelerate as home confinement ends, which we hope is soon.”
The issue which Netflix faces in the long-term is one of production, though this is a challenge which the entire segment is coming to terms with. All filming has effectively stopped globally, and while Netflix will have content ready to launch over the coming months, the severity of the impact to new content launches will depend on how quickly normality can return to society.
This is a risk for the industry, but it is one which can be managed to a degree. Writing can still continue, as can production of animated content, though there will certainly be an impact. However, this should be balanced by the gains which Netflix is seeing through this period of societal lock-down.
“A surge in subs is notable which will have a positive impact on revenue over subsequent quarters,” said Paolo Pescatore of PP Foresight. “Unsurprisingly, engagement is going through the roof and will proliferate over coming months.
“You should expect to see users think twice about how much they spend with their current TV provider and may cut back/substitute in preference for online video streaming services. For now the future of SVOD remains rosy.”