Less Netflix and chill as streaming giant misses Q2 subscriber forecast

19 Jul 2016

Negative press in the US due to a pricing hike is being blamed for unexpected customer churn

Netflix has now reached 83m subscribers but growth is slowing in the US. The streaming video player missed a 2.5m-subscriber growth forecast.

Netflix predicted it would add 2.5m new subscribers in Q2 but this came in at only 1.7m. Last year in Q2, Netflix added 3.3m subscribers.

“We are growing, but not as fast as we would like or have been,” Netflix CEO Reed Hastings said in a letter to shareholders.

Future Human

“Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business,” Reed added.

The company attributed the sluggish performance to unexpected churn due to negative press after it revealed a price hike during the quarter.

Feel the churn

“We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” Hastings said.

“Churn of members who were actually un-grandfathered is modest and conforms to our expectations. With our large subscriber base, slight variances in retention versus forecast can result in significant swings in net adds, particularly in a seasonally small net add quarter like Q2.”

In the US, Netflix’s Q2 net additions were 01.6m against a forecast of 0.50m. Either way, the streaming player is growing revenues. Netflix reported revenues of $1.96bn for the second quarter, up from $1.4bn a year ago. The company reported a profit of $22m for the quarter.

Unperturbed by the Q2 churn, Hastings said that internet TV and streaming video on demand (SVOD) is growing. The streaming TV giant also has more tricks up its sleeve. In addition to the growing popularity of Netflix-produced content, Netflix has announced a new landmark licensing agreement for the new Star Trek TV series.

“As internet TV rises in popularity, so do the SVOD offering,” Hastings said. “In the US, for example, CBS All Access, Seeso, Amazon Prime Video, Hulu, YouTube Red, and many others are all growing. Our view, however, is that we are all growing primarily against linear TV hours and that competition did not contribute materially to our miss in Q2.

“First, increased competition would show up mostly in soft gross additions rather than churn. Second, we experienced a similar uptick in churn in early April in Canada, where there has been no recent increase in SVOD competition but where un-grandfathering is also underway.

“Similarly, we don’t believe market saturation is a key factor in the US given that we experienced similar performance over the same period in multiple countries with differing levels of Netflix market penetration,” Hastings wrote.

Netflix is now a household name for original content Infographic: Netflix Challenges TV Heavyweights at the Emmys | Statista

Despite the turbulent quarter, Netflix’s strategy to attract more subscribers through original content is paying dividends. Trailing only HBO and FX, Netflix is now the third-most successful network in terms of Emmy nominations according to Statista, leaving behind TV heavyweights such as NBC, ABC and CBS.

When the company earned its first nominations in 2013, it went into the award show as a dark horse and ended up winning three awards for House of Cards.

Netflix image via Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years