A lot of people are binge-kvetching today over Netlfix’s dismal Q2 financial numbers. “Disappointing,” said Variety. “Netflix stock tanks as customers quit over higher prices,” the Verge exclaimed.
“Short story: Netflix has growth problems,” wrote Recode’s Peter Kafka.
“Longer story: Netflix says it added the number of subscribers it expected — but it lost more than it planned.”
All of which is true, broadly. It added only 160,000 subscribers in the U.S. in Q2. It expected half a million. It added 1.52 million subscribers overseas. It was shooting for 2 million.
Netflix’s weak numbers in part reflect people who quit subscribing. Netflix CEO Reed Hastings believes those are long-time subscribers who were heretofore protected from a hike in the monthly subscription rate. Now, those grandfathered subscribers are being hit up for the money, and like a lot of miserly grandfathers, they have quit instead.
But here’s another thing. Time marches on. Consumers are getting quite familiar with OTT services and streaming generally. So while that familiarity increases, they’re likely to look around.
In the days of Netflix’s greatest growth, it had Kevin Spacey in the brand new “House of Cards.” And then, “Orange Is The New Black.” They got lots of buzz--indeed those Netflix products are a big reason “binge” is now a word associated with TV content, not just booze or food. Two or three or years ago, people of a certain age had to have Netflix.
Streaming, in fact, still is a demographic/psychographic divider. (Most of those "grandfathered" customers probably aren't actually grandfathers.)
But Netflix isn’t so white hot anymore, not in the jump-on-the-bandwagon kind of way, anyway. Since we don’t know how much anything is really viewed on Netflix--that’s their call--it’s hard to make an airtight case, but “House of Cards” is still the signature series, but it’s become Netflix’s “Law & Order.” “Orange” is over, the second season of “Unbreakable Kimmy Schmidt” is a lot denser than the first and “Master of None,” an extraordinarily pinpoint-perfect sitcom starring and created by Aziz Ansari, had a brief explosion of interest--really, adoration--when it debuted last November that has now seemed to have evaporated. (Maybe that’s just me?) It’s second season doesn’t happen until next April.
“Peaky Blinders” kills me. Love it. But, to pun badly, it’s nothing Netflix can hang its hat on.
I’d take a much more positive view of a down quarter: It’s a streaming market full of competition, and increasingly eager customers.
I don’t think that means Netflix loses when it doesn’t have the most-talked-about new content. It just means sometimes, things--like price increases--screw up the the charts. Netflix itself said, "We are growing, but not as fast as we would like or have been. Disrupting a big market can be bumpy."
When Netflix finally got around to subscription increases for its oldest customers-- early adopters, if you will--it unwittingly invited them to shop around, and these are people who, presumably, know how to do it better than most. Netflix? Been there, done that. But unlike some cable packages, it’s quite easy to re-sign with a streaming service. And Netflix still so obviously has the most toys--and 54 Emmy nominations, more than any program source except HBO.
So we’ll see. Mike Goodman, director of digital media strategies for Strategy Analytics, notes the Netflix share of pay streaming market has declined from 76% last year to 72% this year, and “will continue to do so, as the SVOD market becomes saturated with competition, both domestically and internationally.” He counts 20 SVOD services in North America and Europe, with surely more to come. But being far bigger than the rest gives Netflix some pretty special insulation.
The trouble, he says, is overseas, where it costs more for Netflix to acquire subscribers than it makes off of them, at this point. “Netflix will have to establish a tremendous slate of high quality global content before it can get overseas viewers to pay more for its content,” he writes. But you have to believe Netflix knew that going in.
Is anyone really surprised by this?
First, Ed, well, if we're honest about it: The size of that 'miss' is *much* bigger than anyone would have guessed. Despite the general knowledge that their US penetration is high and mature, nobody knew for sure what the top of the penetration curve was for Netflix. I've spent hours researching this and one can only find some vague ranges. This news event gives a substantial new datapoint about where we're going to land in terms of the OTT market size.
Second, PJ, actually, we do have numbers for Netflix ratings now, from Nielsen. And they're pretty impressive, comparable to HBO. http://www.medialifemagazine.com/finally-real-viewership-numbers-for-netflix/
Finally -- one thing that is not being talked about here? The fact that Comcast has (finally) created a strong movies & TV interface on the X1 platform that works pretty well. So now that Xfinity consumers can actually find the great content they already pay for, it turns out the Netflix value proposition may not be as powerful it was when Comcast users had to navigate through too many menus and stare at tiny little file folder icons.
Critical to observe here... The fact that they had a "new member miss" is far more important than that revenue was okay. Seems to reflect that Silicon Valley thing where investors have been trained to ignore the P&L figuring that profit and loss don't matter as long as there's bazillions of people on the website or using the endeavor.
That's the bubble some are expecting to see burst. But fascinating to see it so obviously in action here with Netflix results.
As to Ed's question... No. It's not a surprise except to those who are too captivated by the Netflix mythology.