Netflix posts weak subscription figures - share falls
U.S. movie portal Netflix has lost U.S. streaming customers for the first time in eight years and missed targets for new subscribers overseas. The subscription video service cited less appealing shows in the quarter and price increases in some markets as reasons.
In the three months to the end of June, Netflix gained only 2.7 million new paid subscriptions worldwide, as the online video service announced in Los Gatos, California, on Wednesday after the close of the US stock exchange. In the U.S., Netflix even lost 130,000 customers. Investors who are used to success are not used to this - the last time there was a similar flop was in 2011, when the company spun off its DVD shipping business.
Netflix's user numbers fell far short of the expectations of Wall Street experts and also below its own forecast of five million new users. Overall, the streaming giant still managed an increase to almost 152 million paid memberships at the end of the quarter thanks to gains outside the US home market. Investors reacted nervously, however, and the share price fell by 13 percent at times in after-hours US trading.
The weak growth did not come as a complete surprise: Netflix delivered relatively few hit movies and series in the most recent quarter and also increased prices in a number of countries, including Switzerland. Expectations were therefore already subdued, but no one had expected such low user growth. The company acknowledged a particularly poor development in regions where subscription fees had been raised in the previous quarter.
As far as the financial results are concerned, however, business was still going well recently: Sales increased by 26 percent year-on-year to 4.9 billion dollars - and profits exceeded Wall Street's forecasts at 270.7 million dollars. This was no consolation to the stock market. However, the share price has already risen by 35 percent over the course of the year, making profit-taking a good idea.
But the real test of Netflix's mettle is yet to come. After entertainment giants like Walt Disney had been relatively passive in their pursuit of the upstart's rapid growth for years, losing more and more cable customers to TV on the Internet, the counterattack is now beginning. Not only Disney, but also AT&T's competitor WarnerMedia with its pay channel HBO and NBCUniversal have competing services in the pipeline.
The attack hits Netflix twice, because the heavyweights of the established entertainment industry not only have a lot of financial power, but also coveted content. And much of it has been available from Netflix in return for license fees. But because Disney and others are now launching their own online services, Marvel productions and other hits are migrating to them. Netflix is losing its two most successful U.S. shows, "Friends" and "The Office," to direct rivals.
Nevertheless, the company is not in a bad position. Netflix has an enormous production budget - this year alone, around $15 billion is expected to flow into exclusive content - and has great brand potential that is far from being exhausted. Netflix has hardly launched any fan merchandise for its successful productions, such as that offered by Disney for its superhero films.
And even though HBO - thanks primarily to the final season of "Game Of Thrones" - clearly outshone Netflix with a total of 137 nominations at this year's Emmy awards ceremony, this is probably only a snapshot. In the current quarter, Netflix has two superhits in the running with new seasons of "Stranger Things" and "Orange Is the New Black," which could attract many new subscribers.
In view of recent developments, however, it is hardly surprising that Netflix has no plans to increase revenues through advertising. The company is well aware that this could really scare off customers. "We believe we will operate a more valuable business in the long run by staying out of competition for advertising revenue and instead competing fully for viewer satisfaction," the letter to shareholders reads.
One thing is certain: The air will soon be thinner in the streaming market. Because it's not just the entertainment giants from Hollywood who want to open the hunt for Netflix. Tech companies from Silicon Valley, such as iPhone giant Apple, also want to get in on the booming business. In addition, there are already existing competitors such as Amazon and Hulu, which also show no signs of competitive fatigue. (sda)
