Earnings spotlight: Spotify, IPG and Netflix
The Media Leader Podcast
Third-quarter earnings season is well upon us, and editor-in-chief Omar Oakes and reporters Jack Benjamin and Ella Sagar unpacked a number of companies’ results on the latest episode of The Media Leader Podcast. These include Spotify, Netflix, and media agency holding companies like Omnicom, Publicis Groupe, WPP and IPG.
Listen to the clip, or read a transcript of the conversation (edited for clarity) below.
The trio discuss:
Spotify‘s strategy regarding price increases, investing in AI and audiobooks;
Why IPG has reported negative growth this quarter;
And whether Netflix can keep raising prices as its ad offering gets off to a slow start.
Earlier today, and after the episode was recorded, WPP reported negative results in its earnings. The company’s revenue fell -1.8% year-on-year, and it downgraded guidance for the rest of 2023, now expecting total profit growth this year in the ballpark of 0.5%-1.0% as opposed to the previously projected range of 1.5%-3.0%.
Overall, WPP, Publicis Groupe, Omnicom, Interpublic Group, and Havas, via parent company Vivendi) have now all reported earnings this quarter, and collectively their organic growth was 2.0%, according to industry analyst Brian Wieser. Dentsu is yet to report earnings this quarter.
Jack Benjamin: Spotify released its third quarter earnings and they blasted past expectations for monthly active users, subscriptions, revenues. It appears price hikes have resulted in better revenue and people are still subscribing, but Ella, I wanted to see if you had any initial thoughts to that?
Ella Sagar: Yeah, I think Spotify is quite interesting because it has those KPIs on users and revenues, and it surpassed all of them.
I think there has been differences in pricing, like you mentioned, and the other thing that’s changed since the last quarter is that they’re really leaning into audiobooks and AI. Those are the things I was looking for when I was reading through the shareholder deck.
AI DJ is one thing that they’ve emphasised, that they’re rolling out in more markets. It’s kind of trying to compete with radio, which I wrote an article about.
And the other thing is AI translation of certain podcasts. Spotify is in a lot of markets, but a lot of their content is not in those local languages, so that’s something they’re trying to address.
Those are three things — audiobooks, AI DJ, and AI translation — that are going to be big things to look out for.
JB: A number of media agency holding companies delivered their Q3 earnings. I want to ask about one: IPG has been performing below some of the other holding companies this year, which have all been generally in the mid-single-digits in terms of revenue growth. Why, Omar, is IPG lagging some of their competitors?
Omar Oakes: We talked last week about the interview we did at The Future of Media with Yannick Bolloré, who runs Vivendi and Havas, and I challenged him during that interview like, “C’mon, you’re making your money through media. You’re not making your money through creative advertising.”
He pushed back on that quite strongly. But it is generally true, when you speak to people that run agency groups privately, that they are making their money through media buying, and the creative agencies, the ad agencies, are generally loss-making.
IPG talked about very strong global growth for IPG Mediabrands. But guess what, the ad agencies, McCann, FCB, R/GA, MRM, they are “challenged,” which is pretty obvious code for losing money.
We talked about this last week with WPP merging Wunderman Thompson and VMLY&R. The advertisers generally care less and less about these brands, sorry to say.
So why is IPG lagging behind the rest? It’s because generally their media-buying operation is smaller and it’s definitely smaller as a proportion of the overall business.
I don’t think it’s a bold prediction to say that we might see some rationalisation of these ad agency brands within the next 12 months, because they need to reduce their cost.
JB: More earnings: Netflix, we talked about them last week on the podcast, but they’ve released their earnings since then. And I know one of the big things we were all looking out for was how their earnings would do relative to their ad tier, and if that’s where they’re making a lot more of their money, or if it’s really just [subscription] price hikes driving revenue growth.
It seems like it was the latter. Omar, you wrote about it, so I’ll give you the first word. Is Netflix in a bit of a problem in terms of its business model?
OO: I think it’s interesting. They’re demonstrating that in markets like the UK, US, and France, where they’re developed, they are actually able to keep raising prices and demand is quite inelastic. Which is probably quite surprising to a lot of people.
Going back to our previous discussion about winner-take-all platforms, I think if you’re a consumer where you’ve had Netflix for 10 years, you just see it as a very good streaming platform, and ask, “Why would I go off it?”
JB: Ella, do you have any thoughts?
ES: I’m a new Netflix subscriber because of those password-sharing crackdowns. So I find it quite interesting who else is in that position. I haven’t gone for the advertising tier—maybe I should and I’ll write an article about it.
JB: About how good or bad it is?
ES: Yeah. Maybe when Disney+ launches its ad tier [on 1 November], I’ll compare. But I think that’s one thing that a lot of other streaming services are looking at Netflix and saying, “What have they done right, and maybe wrong?”
It’s an interesting picture.
OO: Well the key point is that they need to raise prices in markets where demand is plateauing. Everyone who wants Netflix has Netflix.
The ad platform move has been underwhelming, to say the least. They mentioned interesting things in their earnings release where they’re actually developing their own tools, their own ad stack, moving away from this relatonship with Microsoft which, frankly, hasn’t gone done very well by all accounts. Revenue guarantees not being hit, all the rest of it. And not much demand for advertising on Netflix.
It was Advertising Week New York last week and they announced some new advertising formats around binge watching and some of the sports rights they’ve acquired. But it’s not really that innovative.
When Jerami Gorman came to our Future of TV Advertising conference last December, she was talking about how they wanted Netflix advertising to be the equivalent of Times Square or Piccadilly Lights or the World Cup. Nothing they’ve announced in the last year has come close to anything like that.
And frankly they’ve got a big problem with shoehorning a lot of ads into a lot of content that was not designed to have advertising in it.
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