Netflix Subscribers by Service
|Streamers||98.8 million||(+21% versus 16Q1)|
|U.S.||50.9 million||(+8% versus 16Q1)|
|International||47.9 million||(+39% versus 16Q1)|
|U.S. DVD||3.9 million||(-17% versus 16Q1)|
Commentary – on Q1 2017 results
Netflix’ competition is sleep!
Netflix CEO isn’t worried about Amazon or HBO. He considers the company’s primary competition is sleep!
Netflix crosses 50M U.S. subs
Q1 2017 saw Netflix continue with strong growth both domestically and abroad. In the U.S., though growth has slowed considerably, the company continues to deliver solid performance. The company added 1.4 million new subscribers, to cross the 50 million subscriber level for the first time. International markets grew 3.5M, to reach 47.9 million.
Though growth for the quarter was well below the company’s own forecast, breaking the 50M barrier in the U.S. is a notable achievement. No other pay video service has come anywhere close to this level of popularity. HBO, for example, has been struggling to find growth. It had about 31M pay TV subscribers last year, and HBO Now has only added an addition 2M customers.
Competition with Amazon
When asked about being in competition with Amazon, Reed Hastings rejected the idea, as he has done in years past. To explain why, he launched into a description of the companies battle with HBO, which he did describe as a competitor.
“We’re a competitor of HBOs, and yet over ten years we’ve grown to 50 million, and they’ve continued modestly growing. We’re two drops of water in the ocean of time and spending for people. And so, Amazon can do great work, and it can be very hard for it to directly affect us. Home entertainment is not a zero-sum game.”
Mr. Hastings seems to think that the company’s biggest challenge is competing for its subscriber’s time. He described how people binge watch late into the night, forgoing sleep to watch more of the company’s “great content.” This, he said, means that Netflix is “competing with sleep on the margin.”
Downloading not key
Netflix bowed to pressure to allow customers to download video in November of 2016. Amazon and YouTube Red both trumpeted this feature as a big differentiator over Netflix. In the earnings call, Mr. Hastings was asked how much the feature was being used and if it made a big difference to the service. He was cool to the idea:
“It’s a pretty small impact. You’re not on airplanes or in cars that much of your life. So, it’s really nice to have when you use it. At least in Western and more well-off markets, where networks are strong and relatively inexpensive, it’s a modest feature. In Asia it’s a little bigger, because you’re off of an inexpensive network a lot of the time.”
His statement is, perhaps, a tacit acknowledgement that Netflix is not doing very well in Asia. Certainly, the ability to download is more important in markets like India and Indonesia. However, Netflix high price relative to local competition is more a barrier than the ability to download video. For example, iflix is a third of the price of Netflix in countries like Thailand, The Philippines, and Indonesia.
Expectations for the coming quarter
Netflix is forecasting modest growth in Q2 2017. It expects 600,000 new subscribers in the U.S. and 2.6 million in International markets. nScreenMedia thinks both these estimates may be a little high. We estimate Netflix will reach 51M U.S. subscribers and 50M International subscribers by the end of Q2, for an overall gain of 2.3M.
One thing we do agree with Netflix on is that the company will break the 100M subscriber mark in Q2. During the earnings call, Mr. Hastings mentioned he thought the company would cross that barrier possibly in the next week.
Why it matters
Despite slowing growth in the U.S. Netflix is the first pay video service to cross the 50M subscriber level.
The company continues to reject the idea that it is in competition with Amazon.
It also doesn’t think the download feature is an important. If the company were more successful in Asia it would probably be more enthusiastic about the ability to download videos.
Netflix Subscriber Revenue
|16Q4 Total||$2.6 billion||(+35% over 16Q1)|
|2016 Total||$8.8 billion||(+29% over 2015)|
|2015 Total||$6.8 billion||(+23% over 2014)|
|U.S. Streaming||$5 billion||2016|
* Indicates Estimate