After a rocky first quarter, Netflix is back to making bold claims about the future of entertainment. Co-CEO Reed Hastings kicked off the streaming service’s pre-recorded Q2 earnings interview on Tuesday, declaring the death of cable and satellite TV within the next decade.
“Streaming is working everywhere,” Hastings said. “Everyone is pouring in. It’s definitely the end of linear TV over the next five, 10 years.”
Hastings’ projection came following a question about Netflix’s better-than-expected Q2 subscriber numbers. Although originally expected to lose upwards of two million users, the streaming service reported just 970,000 cancellations over the three-month period.
“We’re improving everything we do around marketing, improving the service, the merchandising, all of that slowly pays,” Hastings explained. “If there was a single thing, we might say ‘Stranger Things.'”
“Our biggest hits have all come out in the last 12 months, which is a phenomenal sign of progress,” agreed co-CEO Ted Sarandos later in the call, citing “Stranger Things 4,” “Bridgerton” Season 2, and “Squid Game” among the platform’s most successful series.
“But again we’re talking about losing one million instead of losing two million,” Hastings said during his opening remarks. “So our excitement is tempered by the ‘less bad’ results.”
Netflix argued the COVID-19 pandemic, economic inflation, and the war in Ukraine, among other market factors, continue to hamper their growth in the short term. But comparing current streaming head winds with those impacting the linear TV market, Netflix argues, portends an exclusively on-demand future.
“In the US, which is one of the most competitive markets in the world, we drew more TV viewing time than any other outlet during the 2021-22 [TV season,] nearly matching the combined total of the two most watched broadcast networks,” Netflix reported in a letter to shareholders sent earlier on Tuesday. “And, as Nielsen will announce on Thursday, our share of US TV viewing reached an all-time high of 7.7% in June (vs. 6.6% in June 2021), demonstrating our ability to grow our engagement share as we continue to improve our service.”
Netflix plans to introduce a cheaper, ad-supported subscription tier in early 2023, bringing the platform’s previously no-ads business model closer to that of linear TV.
“Over time, our hope is to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for our advertising partners,” the letter continues. “While it will take some time to grow our member base for the ad tier and the associated ad revenues, over the long run, we think advertising can enable substantial incremental membership (through lower prices) and profit growth (through ad revenues).”