Netflix will release its second-quarter earnings on Wednesday, the first in a series of reports from entertainment companies coming under the ire of striking Hollywood actors and writers.
Analysts expect Netflix to have some positive news to report. Resistance to the company’s crackdown on password sharing has been scant. The new level of advertising that Netflix introduced in November is expected to start producing solid returns. And overall subscriber churn has remained low, even in the face of additional competition.
“If there’s a winner in this, and I think financially in terms of real value, I think there’s really only one winner: Netflix,” said Barry Diller, a veteran media executive. “It doesn’t mean all these other companies lose. It just means these other companies don’t have as good a business model.”
Comcast, Warner Bros. Discovery, Paramount Global and Disney will report earnings in the coming weeks. But Netflix’s optics are especially tricky.
Netflix has been on the receiving end of much of the virulence surrounding the strike, mainly from writers who say the streaming-era economy has eroded their working conditions and hurt their overall compensation. The company already clashed with angry shareholders last month, when they voted to reject lucrative salary packages for the company’s top executives. An upbeat earnings report could certainly inflame those on the picket lines.
“The unions will listen to every word you say and use it against you,” said Jessica Reif Ehrlich, a Bank of America analyst who will lead the question-and-answer session with top Netflix executives after the earnings are announced. “The reality is that they are running an important business. Obviously, I’ll ask them about the strikes, but they have other things going on, like password sharing, which has nothing to do with the strike. I just don’t know how carefully worded or protected they will be due to the possible reaction of the unions.
The company has already seen some benefits from the strike. Last month, Netflix said it would license WarnerMedia’s HBO original shows, including “Insecure,” “Band of Brothers,” “The Pacific,” “Six Feet Under” and “Ballers.”
Netflix announced Wednesday morning that it had removed 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 the ad-supported plan at $6.99 or one of two ad-free options that cost $15.49 for “Standard” or $19.99 for “Premium.”
Unlike traditional entertainment companies, which have seen their share prices fall since the writers’ strike began in May, Netflix’s shares are up about 39 percent, hitting $474.80 at the close of business on Tuesday.
In addition to new shows for Netflix subscribers generating solid returns, the company is also expected to post profits from reduced operating costs associated with productions shut down during the writers’ strike. Notable shows like “Big Mouth,” “Cobra Kai” and “Stranger Things” were slated to be in production but were shut down instead. In the case of “Stranger Things,” series creators Matt and Ross Duffer chose to stop filming because they couldn’t continue writing while on set.
“Writing does not stop when shooting begins” they wrote on Twitter in early May.