'Our growth just expands the market'; Netflix members soar in Q2

Pippa Chambers
By Pippa Chambers | 18 July 2017
Image source: Netflix

Netflix has beaten membership expectations, causing a spike in shares. It also plans on reinvigorating the film business just as it has done with TV, and argues that instead of taking a bite out of the TV space, its growth actually just expands the market.

In its latest Q2 earnings results, the US entertainment company added 5.2 million total subscribers, versus the company forecast of 3.2 million and attributes this increase to the new slate of original content that debuted during the second fiscal quarter. Total subscribers grew from 99m to 104m.

Most of the subscriber growth came from overseas (4.14 million new subscribers).

“In Q2, we underestimated the popularity of our strong slate of content which led to higher-than-expected acquisition across all major territories”, the company said.

Its Q2 revenue was $US2.785 billion, up 32.3% year-over-year, and compared to Wall Street forecasts of $US2.76 billion.

A symbolic milestone

“For Q2, revenue and operating income were right on forecast. Our streaming membership grew more than expected, from 99m to 104m, due to our amazing content. We also crossed the symbolic milestones of 100m members and more international than domestic members. It was a good quarter.”

The good news sent the company's shares up by more than 10% in after-hours trading on Monday.

Last week, the Television Academy nominated 27 Netflix original programs with 91 Emmy nominations, nearly double last year’s tally - showing it has no plans to slow down.

According to Fortune Netflix is spending more than $6 billion on original content this year alone, up by $1 billion from last year. We know it's investing in original Australian content too, closing in on Stan. In May it announced its first original Australian series would be made. The supernatural crime drama, titled Tidelands, will be filmed in Queensland next year. The series, created by the team behind the Network Ten drama Secrets & Lies, will follow an ex-criminal who returns to her mysterious hometown.

Good progress with international expansion

Netflix's international segment now accounts for 50.1% of its total membership base,but it does not break this down into exact regions.

Its international revenue rose 57% year over year, excluding a -$23 million impact from foreign exchange.

“We’re forecasting Q3’17 international net adds of 3.65 million. We are making good progress with our international expansion as improving profitability in our earlier international markets helps fund significant investment in our newer territories,” it said.

“As a result, we expect positive international contribution profit for the full year 2017​, at current F/X exchange rates. This would mark the first ever annual contribution profit from our international segment.”

Netflix increased its volume of originals across several genres and says the volume and breadth of its releases in Q2 exemplify its commitment to serve the desires of its diverse and growing audience.

It premiered 14 new seasons of global Netflix original series, 13 original two comedy specials, six original documentaries, two original documentary series, nine original feature films and seven seasons of original series for kids – proving again how local players could struggle to keep up at such a pace.

Netlix went on to say as much as its strives to be bold in our programming choices and financially disciplined, sometimes those shows don’t attract as many viewers as hoped for, compared to its other content.

“As much as we dislike ending a series early, it consoles us that it frees up investment for another new show, or two,” it cheerily added.

TV can similarly reinvigorate the film business

Also in its Q2 results Netflix revealed its plans on taking a bigger bite out of the film industry despite this being contrary to historic content methods.

“We understand that our approach to films - debuting movies on Netflix first - is counter to Hollywood’s century-old windowing tradition. But just as we changed and reinvented the TV business by putting consumers first and making access to content more convenient, we believe internet TV can similarly reinvigorate the film business (as distinct from the theatrical business),” the company said.

As such, this year alone it will release 40 features that range from big budget popcorn films to grassroots independent cinema.

As it looks for more ways to complement its direct-to-consumer primary approach, the 20-year-old firm says it plans on expanding its offering via partners such as via consumer electronic companies, video game consoles, smartphone makers and mobile operators to make it easier for consumers to get to Netflix.

Netflix isn't eating linear TV, that's “still huge”

Despite detailing its growth plans and flashing its healthy membership base Netflix says there is room for everyone; even linear TV.

“The competition for entertainment time is always intense, but the silver lining is that the market is vast and diverse,” it says.

“YouTube is earning over a billion hours a day of consumers’ time with one type of entertainment, while we are earning over a billion hours a week with our type of entertainment. Linear TV is still huge, piracy still substantial, and there are thousands of firms and approaches around the world earning some fraction of consumers’ entertainment time

“The entertainment market is so broad that we’ve grown from zero to over 50m streaming households in the US over the last 10 years, and yet HBO continues to increase its US subscriptions. It seems our growth just expands the market. The largely exclusive nature of each service’s content means that we are not direct substitutes for each other, but rather complements.

In April Netflix said it would spend more than $1 billion on marketing this year, including an increase in programmatic advertising activity to drive member acquisition.

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