Netflix will release its second-quarter earnings on Wednesday, the first in a series of reports from the entertainment company that rile up amazing Hollywood actors and writers.
Analysts expect Netflix to have positive news. Resistance to the company’s crackdown on password sharing was minimal. The new ad tier Netflix introduced in November is expected to start producing strong returns. And overall subscriber volatility remained low, even in the face of additional competition.
“If there’s a winner in this, and I think in economic terms in real terms, I think there’s only one winner — and that’s Netflix,” said Barry Diller, a veteran media director. “It doesn’t mean that all these other companies are losing. It just means that these other companies don’t have a good business model.”
Comcast and Warner Bros. will announce Discovery, Paramount Global and Disney will report earnings in the coming weeks. But the optics for Netflix are particularly complex.
Netflix has been on the receiving end of much of the barbs surrounding the strike, especially from writers who say the economics of the streaming era have eroded their working conditions and hurt their overall compensation. The company had already argued with irate shareholders last month, when they voted to reject lucrative salary packages for the company’s top executives. The rosy earnings report could certainly stoke those in the picket lines.
“The unions will listen to every word you say and use it against them,” said Jessica Reeve Ehrlich, a Bank of America analyst who will lead the question-and-answer session with senior Netflix executives after the earnings announcement. In fact, they run a major business. Obviously, I’ll ask them about infractions, but they have other things going on, like password sharing, that have nothing to do with the hit. I just don’t know how carefully they are drafted or guarded due to the possible backlash by the Guilds.”
The company has already seen some benefits from the strike. Last month, Netflix said it would license HBO originals from WarnerMedia, including “Insecure,” “Band of Brothers,” “The Pacific,” “Six Feet Under,” and “Ballers.”
Netflix announced Wednesday morning that it’s removing its $9.99 ad-free “Basic” plan in the US and UK. Consumers who sign up for this plan can stay, but new subscribers will have to choose either the ad-supported plan at $6.99, or one of two ad-free options that cost either $15.49 for “Standard” or $19.99 for “Premium”.
In contrast to traditional entertainment companies, which have seen their share prices drop since the writers’ strike began in May, shares of Netflix are up nearly 39%, to $474.80 at the market close Tuesday.
In addition to Netflix’s new subscriber programs generating solid returns, the company is also expected to post gains from lower operating costs associated with shutting down production during the writers’ strike. High-profile shows like “Big Mouth”, “Cobra Kai” and “Stranger Things” were all slated to be produced but instead closed. In the case of “Stranger Things,” the series’ creators, Matt and Ross Duffer, chose to stop filming, because they were unable to continue writing while filming.
“The writing doesn’t stop when you start shooting” they wrote on Twitter in early May.