Bottom line: Netflix was off to a record breaking start in 2019 as its Q1 earnings reported addition of nearly 10 million new subscribers, but that momentum appears to have slowed down quite a bit. Despite forecasting lighter figures for Q2, new subscriber growth could only reach about half (54 percent) of the projected 5 million figure while YoY values for Q2 stood at 5.5 million for 2018 and 2.7 million for 2019.
Netflix is going to need more original hits like Stranger Things if it wants to gain (and retain) subscribers and the confidence of the company's stakeholders. In its Q2 2019 earnings report, CEO Reed Hastings started off with the good news of 26% increased revenue but followed it up with a considerable decline in new subscribers while targeting an ambitious growth of 7 million paid memberships for Q3.
"Our missed forecast was across all regions, but slightly more so in regions with price increases," said Hastings, noting that competition wasn't a factor "since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions." He also cited Q2's content as the major cause, besides the price hike, for less than expected additions to paid subs.
In the US, Netflix "Paid Net Additions" for the second quarter stood at -0.13 meaning a loss of around 130,000 subscribers, the first since the 2011 split of its DVD-by-mail and streaming business, although free trial signups did see a minor increase of 20,000 users. For its Q3, it has forecast 800,000 new subscriptions while its international market saw a quarterly increase of 2.8 million new paid members, the lowest among its last four quarters.
The Q2 content which Netflix did find worth mentioning includes Dead to Me starring Christina Applegate, watched by 30 million households in its first month, and which has been renewed for a second season. When They See Us received 16 Emmy nominations and was home to 25 million views in its first month. Meanwhile docu-series Our Planet got 10 Emmy nominations and was able to reach 33 million households during its first month of release.
In movies, Adam Sandler and Jennifer Aniston's Murder Mystery saw huge success with 73 million households breaking new movie records for Netflix. "We are making good progress with our original films portfolio with more and more of our films creating larger audiences than our pay 1 licensed movies," writes Hastings, with The Perfect Date and Always Be My Maybe as noticeable mentions.
Netflix is expecting a strong Q3 thanks to Stranger Things season 3 along with "new seasons of La Casa de Papel (Money Heist), The Crown, and the final season of the iconic Orange is the New Black as well as big films like The Irishman from Martin Scorsese and action movie 6 Underground."
Netflix also brought on-board Jackie Lee-Joe as its new CMO to further its marketing efforts, citing the launch of season 3 of Stranger Things that included partnerships "with best-in-class brands like Coke, Nike, Burger King, and Baskin Robbins to build deep connections with our fans." It also mentioned the mobile game based on the hit series announced at E3, along with a new title based on its upcoming Dark Crystal: Age of Resistance and a partnership with Epic Games. Netflix is calling these gaming efforts "merchandising initiatives" and not a new business for the company as it looks to develop an enthusiastic fanbase for its titles.
It also took the opportunity to announce its recent partnership with AT&T in the US for Netflix integration in the ISP's new set-top box and a lower-price mobile-screen plan for users in India, in addition to existing plans, as it looks to expand viewers in emerging markets.
Highlighting its competition over the next year, Netflix mentioned Disney, Apple, WarnerMedia, NBCU as new entries who'll be joining Hulu, Amazon, BBC, Hotstar, YouTube and many others in offering streaming entertainment. The eventual removal of Disney's catalog, Friends, The Office and other content will free up budget for originals as licensing fees expire. "We don’t have material viewing concentration as even our largest titles (that are watched by millions of members) account for only a low single digit percentage of streaming hours," said Hastings.
The company also rejected any notions that it'll be introducing ads on the platform. "We, like HBO, are advertising free. That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction."
Since the Q2 reports' release, Netflix stock plummeted due to missing forecast of new memberships but the streaming service is still home to a respectable 151.5 million subscribers globally.