Netflix’s Q2 2019 results have revealed subscriber growth was well under internal estimations. Netflix added just 2.70 million paying subscribers over the three-month period against the 5 million it forecasted in the previous quarterly report. Split between international and domestic subscribers also revealed a loss of 126,000 subscribers in the US market subscriber base, a 0.2% decrease. This is the first-time domestic Netflix subscriber numbers have fallen since Q4 2011, when Netflix lost 800,000 subscribers on the back of the separation and subsequent price increase of its DVD and streaming businesses. Last year Netflix added 5.5 million subscriptions in the same quarter. Netflix now has 151.5 million subscriptions globally.
Netflix’s revenues however continued to climb, both domestically and internationally, rising by 11%/8% QoQ and 21%/33% YoY to $2.30 and $2.55 bn respectively. This roughly matched internal estimates and is largely the result of continuous price increases around the world over the course of 2019.
Such results are a blow for the international streaming giant which has typically seen subscribers’ growth exceed expectations. The reasons behind slower international growth and domestic loss are rooted in both the natural seasonality of OTT subscription video services as well as the severity of Netflix recent rounds of price increases in major markets.
IHS Markit is forecasting Netflix to return to growth for Q3 as it continues launch its array of new content and build up its original library in the face of new competition from US studios and tech companies, many of whom will pull their content from the platform and thus depriving Netflix of some of its most popular shows by viewership, including Warner’s The Office and Friends and Disney’s array of Marvel and kids movies. Having spent over $6.3 bn on content over the last 6 months, Netflix is continuing to produce new and well-established programming alike, much of which has proven to have global appeal, having already launched Stranger Things Season 3 with new seasons of La Casa de Papel, The Crown and Orange is the New Black due for release in H2 2019.
Netflix also has a lot of growth potential in some major international markets. As part of Netflix’s reporting, confirmation was given for a mobile only Netflix tier that is due to release in India before the end of the third quarter. The tier was in trial for several months across a number of countries, particularly in emerging Asia Pacific markets. Such a tier is a shrewd choice for India, a market that Netflix has struggled to gain significant traction in to date owing to its relatively high cost versus the competition, including its main global OTT subscription video rival Amazon and highly popular Hotstar Premium, owned by Disney. Depending on price, such an addition to Netflix’s subscription portfolio across emerging markets could add a significant number of subscribers, generating significantly more revenue than would have been possible in these markets otherwise and helping to continue Netflix’s rise as a global online video superpower.
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