Netflix 23Q1

Netflix 23Q1 results:

• current AVOD tier ARM (subscr + ads) > Standard tier ARM, to expand features of AVOD tier (currently in 12 countries): 1080p, 2 streams (first in Canada, Spain)
• to expand paid-sharing to US etc 23Q2 (delayed from late Q1), to block devices attempting access without properly paying (already in Chile, Costa Rica, Peru and Canada, New Zealand, Portugal, Spain)
• to close DVD-by-Mail 230929 (last day of shipping)
• forecast 23Q2: paid net adds simialr to 23Q1, slight increase for forex-neutral ARM, rev $8.242b (+3.4%), oper inc $1.565b (margin 19.0%), net inc $1.283b (EPS $2.84)
• targets 2023: rev growth to accelerate in H2, oper margin 18-20%, FCF $3.5b (raised from 3.0b on lower content spend), cash content to content amortization ratio closer to 1.0x, SBB to accelerate
• target 2024: content spend $17b
• long-term financial objectives unchanged: sustain double digit revenue growth, expand operating margin, deliver growing positive free cash flow, gross debt range $10-15b, maintain minimum cash equivalent to roughly 2 months of revenue

Warner Bros Discovery announces Max, merged HBO Max / discovery+ SVOD service

Plans to launch Max SVOD service:

• merged HBO Max & discovery+: HBO Originals, Warner Bros films, Max Originals, DC universe, Wizarding World of Harry Potter, kids content, factual (food, home, reality, lifestyle, docus from HGTV, Food Network, Discovery Channel, TLC, ID etc)
• "unmatched in the breadth, reach, and excellence", "one seamless user experience that invites every member of the family"
• 230523 in US, autumn 2023 in Latam, early 2024 in Europe, mid 2024 in APAC, new markets autumn 2024
• 3 tiers:
• Max Ad-Lite (10 $/mo or 100 $/yr; 2 streams, no downloads, 1080p, 5.1 sound)
• Max Ad Free (16 $/mo or 150 $/yr; same but max 30 downloads, no more 4K UHD)
• Max Ultimate Ad Free (20 $/mo or 200 $/yr; 4 streams, max 100 downloads, 4K UHD, Dolby Atmos)
• current HBO Max subs keep same price, profiles automatically transferred, features (e.g. 4K, number of streams) to continue for 6 months after launch
• discovery+ remains available stand-alone (incl some exclusive content), price unchanged (5 or 7 $/mo)
• improved features: Premium Video Playback (cinematic), Personalization, More Prominent Kids Experience, Simplified Navigation
• 4 key objectives: to drive more engagement, to enhance subscriber retention & reduce churn, to improve performance; to optimized monetization
• content:
• to add >40 new titles/seasons per month
• orders series The Conjuring (movie spin-off), orders series A Knight of the Seven Kingdoms: The Hedge Knight (prequel to Game of Thrones), orders new spin-off series to Big Bang Theory; orders Harry Potter series (remake, decade-long)
• launches campaign (tagline “The One to Watch”)
• currently 50% of churn is involuntary (e.g. credit card expiration)
• currently 7% of D2C subs have both HBO Max & discovery+

Comments:

• Main points already leaked (name, pricing, content strategy); start-up losses will continue for some time; 2023 was to be the year of 'relaunching and building'
• Aims to match Netflix, Disney+, Prime Video in terms of breadth; focuses on families; something for everyone at any time, any mood; leaves competitors (Paramount+, Peacock, Lionsgate, MGM) ever more behind
• Dropping the iconic HBO brand is dubious (esp. in the US); also: focus on remakes, prequels, sequels and spin-offs foregos creativity and may not attract new subs (but it is good for the brand, carries low risk and allows additional monetisation through experiences at theme parks, such as new Harry Potter park in Abu Dhabi); adding discovery+ content is nice but may not attract new subs; the movie library grows at a slow pace (no direct-to-streaming titles), just 12 theatrical releases in 2023
• Maintains pricing of HBO Max tiers but adds a superior tier at the high end; positive for ARPU; 4K no longer available for 16 USD/mo tier
• Other:
• FAST service yet to come; to keep live sports mainly on linear (in US), on Eurosport (Europe), Olympics deal with EBU
• no more day & date, 12 theatrical releases in 2023
• multiple new Lord of the Rings films
• may sell RSNs, music rights (soundtracks) but no bidders
• Moody's maintains Baa3 (lowest investment grade) on expected leverage decline to 4.25x YE 2024 (currently 5.0x)