Netflix shares slide as US subs falter

Netflix’s July was boosted by the launch of Stranger Things S3

Netflix has seen its first drop in US subscribers and added fewer international customers than expected, causing its stock price to fall.

As predicted earlier this year, the world’s biggest SVoD company experienced slower growth in 2019’s second quarter after a strong Q1, although it has still passed the milestone of 150 million subscribers globally, with 151.6 million signed-up members.

The firm yesterday reported a loss of 130,000 customers in the US between April and June, which it put down to higher prices and an underperforming slate of new TV shows. It also signed up 2.8 million subscribers internationally in the period, roughly half what the company predicted.

As a result, shares in the company sank 10% yesterday, with analysts such as EMarketer’s Eric Haggstrom predicting a “difficult road ahead” for the firm as competition from Disney and WarnerMedia looms.

“Our missed forecast was across all regions but slightly more so in regions with price increases,” Netflix said in a letter to shareholders

The loss in subscribers marked the first major drop in US numbers since 2011, when the company began its move away from a mail-order DVD business model to streaming and raised its prices.

Netflix was bullish about its prospects, stating: “In prior quarters with over-forecasts, we’ve found that the underlying long-term growth was not affected and staying focused on the fundamentals of our business served us well.”

The firm expects to grow in Q3 and said July had started strongly with the launch of season three of Stranger Things.

The streamer also pointed to new seasons of Money Heist, The Crown, Orange is the New Black and high-profile features such as The Irishman, from Martin Scorsese, and 6 Underground, directed by Michael Bay and starring Ryan Reynolds, all set to be released in Q3.

Meanwhile, Netflix acknowledged that the launch of services such as Disney+, HBO Max and NBCUniversal’s direct-to-consumer offer will result in the eventual loss globally of the Disney catalogue, Friends and The Office.

This will “free up budget for more original content,” the firm said. “From what we’ve seen in the past, when we drop strong catalogue content (Starz and Epix with Sony, Disney and Paramount films, or second-run series from Fox, for example) our members shift over to enjoying our other great content,” it added.

The company is also looking to step up the marketing around its original content and has hired Jackie Lee-Joe from BBC Studios as its chief marketing officer to help take its marketing “to the next level.”

Tech, media and telco analyst Paolo Pescatore of PP Foresight said that Q2 is typically a challenging period for the streamer due to seasonality.

“The competitive landscape will intensify but Netflix has a huge head-start on new rivals. And it still has time to strengthen its position. Netflix must create more blockbuster hits that attract and retain subscribers. This will be key in its core domestic market given the launch of new services,” said Pescatore.

“Its overseas markets will continue to attract new subs thanks largely to its successful partnership strategy with cable, pay TV and telco providers. For sure expect more key licensed programming to be pulled off its catalogue as rivals seek to differentiate their own offerings. Netflix must diversify into new services and broaden its business model.

“It cannot solely rely on annual price increases to grow revenue and reduce its burgeoning debt and content obligations. Big battles lie ahead and video represents a key area for the online and tech giants. It opens up new business models in advertising, subscription, transaction as well as others, including merchandise,” Pescatore added.