For the first time since 2011, Netflix reported a loss of around 130,000 US subscribers in its last quarter. In a report to his shareholders, Netflix CEO Reed Hastings stated that in Q2 the number of paid members globally grew by 2.7 million, nearly half of the company’s forecast (which is an increase of about 5.5 million subscribers). Soon after the report was published, Netflix’s shares dropped by nearly 12%.
Hastings blamed the company’s prices hike for the drop in subscribers. In January, Netflix had initiated higher pricing plans. Hastings mentioned in the report that even though they have missed their forecast it was “slightly more so in regions with price increases.” But he did blame “a lack of original content” to draw new subscribers to the platform.
He denied that competition could be a reason for this loss. He added, “We don’t believe the competition was 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.”
Netflix will soon loose two of its most binged licensed shows on the platform namely ‘The Office’ and ‘Friends’ to WarnerMedia and NBC Universal respectively. To replace these shows, Netflix will heavily rely on original content.
Noting the exit of these shows, Hastings said, “Much of our domestic, and eventually global, Disney catalog, as well as Friends, The Office, and some other licensed content will wind down over the coming years, freeing up budget for more original content.”
He added that “From what we’ve seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or second run series from Fox, for example) our members shift over to enjoying our other great content.”
Regardless of a subscriber loss, Netflix reported that it’s making good progress with its original films portfolio “with more and more of our films creating larger audiences than our pay 1 licensed movies.” Murder Mystery, a movie starring Adam Sandler and Jennifer Aniston, premiered last month was watched over 73 million viewers in the first four weeks.
Hasting remarked that Netflix’s non-English shows have been received well globally mentioning the Swedish series The Quicksand. Family Business (A French series) and the first two seasons of the Historia de un Crimen franchise (A Latin American show) proved to be popular in their local territories.
Netflix’s Q3 started with Stranger Things season 3 and Hastings noted “the first two weeks of Q3 are strong.” Upcoming shows on Netflix are new seasons of Money Heist, The Crown, and the final season of Orange Is the New Black. Netflix has reportedly allotted $140 million for Martin Scorsese’s upcoming film The Irishman. According to a report by The Verge, the company has purchased permanent studios to produce films and shows faster.
Netflix has been facing severe competition from existing rival platforms such as Hulu, Amazon, BBC, Hotstar, YouTube with new additions of Disney, Apple, WarnerMedia, and NBC Universals. “The competition for winning consumers’ relaxation time is fierce for all companies and great for consumers,” Hastings said. “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,” he added remarking the company’s ad-free business model.
Netflix expects growth in the number of subscribers in Q3. Hastings said, “We forecast Q3 global paid net adds of 7 million, up vs. 6.1 million in Q3 2018, with 800,000 in the US and 6.2 million internationally.”
