Netflix Subscribers by Service
|Streamers||92.6 million||(+25% versus 15Q4)|
|U.S.||49.4 million||(+10% versus 15Q4)|
|International||44.4 million||(+51% versus 15Q4)|
|U.S. DVD||4.1 million||(-16% versus 15Q4)|
Commentary – on Q4 2016 results
$6B content spend to drive Netflix passed 106M subs in 2017
Did spending $5B in 2016 on content pay off for Netflix? Looking at the company’s Q4 2016 results the answer is clearly yes. That’s why it will keep the peddle-to-the-metal in 2017, upping the ante a further 20%.
Q4 2016 Results
Netflix added over 7M subscribers worldwide in Q4 2016. International additions remain the dominant driver for growth, with 3 in every 4 additions coming from outside the US. That does not mean the US performed badly. Domestic subscribers increased 1.9M, or 4%, for the quarter, showing stronger growth than in Q4 2015.
For the year, US subs grew 10.5%, to finish at 49.4 million, and international subs increased 48%, or 44.4 million. Revenue grew strongly, driven by subscriber growth and the ending of grandfathered subscriptions. Q4 revenue was up 36% on the same quarter in 2015, to reach $2.5B. Annual revenue grew 29% over 2015, ending just shy of $9B.
In the investor call to discuss the results, David Wells, Netflix CFO, commented that the company did see some subscriber losses due to the ending of grandfathering,* but that most of those subscribers came back later. This suggests Netflix base cost of $10 a month is still considered a good value by most consumers. Reed Hastings, Netflix CEO, later said there were no plans to increase prices anytime soon.
Driving the International expansion of SVOD
Netflix is continuing to ride and drive the expansion of online television in many countries around the world. For example, in Western Europe SVOD penetration is just 14%, with half of those subscriptions going to Netflix. Penetration is expected to increase to 21%, with Netflix maintaining close to a 50% share. In the U.S., 64% have access to at least one SVOD service.
Mr. Hastings categorized the International growth into 3 broad regions:
“What we’ve seen in Latin America is steady growth, Europe as whole has really been picking up momentum for us, and Asia we are just getting started.”
Asia could be a big challenge for Netflix. Unlike Europe and Latin America, competition from low-price high-quality services like iflix could stunt the growth of Netflix in the region.
Content investment remains critical
The driver of subscription growth continues to be content. Netflix spent $3B on content in 2015, $5B in 2016, and plans to spend $6B in 2017. As much as half of that money is now being channeled toward Netflix originals. And those originals are having a huge impact on driving consumers to sign up. According to Google, 5 of the top ten searched for shows in 2016 were Netflix originals.
Golden Globe winning drama The Crown was singled out by Ted Saranados, Netflix’ Chief Content Officer, as being particularly effective in the UK at driving subscribers. But he was careful to emphasize that it has a very broad global appeal as well.
The company is continuing to channel more content investment into local content. However, it is careful to ensure the shows created maintain a regional and, if possible, global appeal. One example Mr. Sarandos mentioned was 3%, the Brazilian Sci-Fi series. He said the show was one of the most watched originals in Brazil. Though 3% was in Portuguese, it played well in the rest of Spanish-speaking Latin America. It also did well in the US, with millions watching it in its dubbed and subtitled form.
Outlook for the rest of the year
What should we expect from Netflix in 2017? The company continues to pursue an aggressive original content strategy both domestically and internationally. It is also keeping price increases in check to favor subscriber growth. This should lead to Netflix exceeding 100 million worldwide streaming subscribers around mid-year, and finishing 2017 with more than 106 million. The number of international subscribers will exceed the number of US customers sometime in the third quarter.
You can always find the latest Netflix results and opinions at nscreenmedia.com. Just click on the trackers menu item.
Why it matters
There is nothing uncanny about Netflix’ formula for growth: invest in content and subscribers will come.
What is uncanny is the ability of the company to make great content that consumers want to watch.
Expect that formula to continue to deliver subscriber growth in 2017.
*Netflix allowed subscribers who subscribed at $7.99 a month to remain at the rate while it increased the price for new subscribers to $9.99. It ended that “grandfathering” practice in 2016.
Netflix Subscriber Revenue
|16Q4 Total||$2.5 billion||(+36% over 15Q4)|
|2016 Total||$8.8 billion||(+29% over 2015)|
|2015 Total||$6.8 billion||(+23% over 2014)|
|U.S. Streaming||$5 billion||2016|
* Indicates Estimate