Reality Check: Netflix Profits vs. Everyone Else
The streamer smack-talked Disney, WBD in its Q3 earnings. Nuance paints another financial picture
For all of my criticism of Netflix, I do think it leads the entertainment industry in one respect: Netflix writes incredible quarterly “letters to shareholders.”
So many of its competitors either don’t write anything at all, using just a PowerPoint with some tables, or if they do write something, they fill it with incredibly stilted prose. Netflix, in contrast, usually writes up a nice little essay that communicates one overall theme.
These themes both set the terms of debate for Netflix and streaming at large. And that’s a brilliant strategy if you can pull it off. For years, Netflix focused Wall Street on its subscriber growth (while losing lots of money), and by the end of the 2010s, convinced all of traditional media to chase subscriber growth, too (while also losing lots of money!). But as soon as sub growth stalled, it pivoted to a new argument for media dominance:
From the letter:
Subscriber growth is so 2021. Now streaming is all about profit. And guess what? According to Netflix, it’s the only profitable streamer! Guess everyone on Wall Street knows where to put their money, right? (Interestingly, Warner Bros. Discovery CEO David Zaslav essentially tried to make this argument back in August, saying he would focus his company on growing bottom lines, not subscribers, but was roundly hammered for it…)
Netflix also knows that by setting the narrative, it can rely on nearly every major news outlet to repeat it. And many reporters did! And thus, Netflix set the narrative for entertainment again (the tail wagging the dog per usual). While I disagree with Netflix on a lot — as a fairly outspoken Netflix bear — I’m not even mad; I’m impressed. To paraphrase Ron Burgundy:
Of course, just because Netflix tries to set a new narrative doesn’t mean we have to let them. When Netflix says it’s the most profitable streamer, it isn’t lying. But it definitely spun things in the most positive light. (As it should! But we should always remember the “iceberg principle” of PR.)
Frankly, while most coverage called Netflix’s latest earnings report a big win — and the stock is up since — I thought it was a mostly average earning report. And today I have a few charts to evaluate Netflix’s claim it’s the most profitable streamer.
To be clear: Netflix isn’t wrong or lying, but I think it left out some nuance.
In today’s article, I’m going to look at:
How every entertainment company stacks up on profits
The gap between Netflix’s profit and cash flow, and everyone else’s
How long it will take other major streamers to catch up to Netflix