Bad Quarter? Netflix Sees Drop in Subscribers
For the first time in almost a decade, Netflix reported that the number of subscribers dropped in the United States; the poor quarterly performance comes from rivals entering the market. However, Netflix should not be alarmed due to its year to date performance and projections for the upcoming quarter.
In the United States, there were 120 thousand fewer subscribers to Netflix than there were in the second quarter. Globally, the streaming giant added 2.7 million subscribers, which was only 54% of the 5 million projected. Following the report, shares fell by 12%. However, revenue rose 26% to hit its expected $4.92 billion, and operating income increased 53% to $706 million. Additionally, Netflix is up 35% since January 2nd. Not to mention, Netflix expects to add seven million subscribers in the following quarter, including 800 thousand in the US.
The slowdown in growth is a result of WarnerMedia and NBCUniversal preparing to step into the streaming market. In order to compete, the two streaming companies are taking away their content from Netflix. WarnerMedia’s streaming service, HBO Max (which starts in the spring), is taking “Friends” from Netflix, while NBCUniversal (whose streaming service starts in 2021) is taking “The Office” from Netflix.
Netflix was unfazed by the loss of its two most streamed shows, believing that they can now spend more on their own original content. The combined streaming hours for “Friends” and “The Office” only account for 10% of Netflix’s total streaming hours. Moreover, Netflix has always pushed its own content saying they want their consumer “attuned to the expectation that we are going to create their next favorite show.”
Netflix is vigorously opposed to adding traditional advertisements to their content. The company believes they will be better off in the long term if they stay away from advertisements and focus entirely on the viewer’s experience. This is a good move because kids who have been accustomed to not watching ads would certainly decrease their use of the service if traditional ads pop up. Netflix is taking the craftier path by adding in-show advertisements to still get ad revenue without hurting the viewing experience.
At one-point Netflix disrupted the entertainment industry and was the lone-standing streaming service. Netflix has a huge start on competing companies and content that people love. The streaming giant will bounce back from this quarter and continue to capture the vast majority of the market according to their CEO Reed Hastings who sees 7 million new subscribers coming to Netflix in the third quarter.
Written by Will Turchetta & Edited by Alexander Fleiss