Disney+ is coming…
LOS GATOS, Calif. – After a serious stumble with its Q2 results, Netflix’s third quarter ended September 30th, revealed the company grew subscribers, but fell shy of hitting its targets.
The global streamer added 6.8 million paid subs worldwide against a target of 7 million. While those results still handily eclipse the same period last year when it added 6.1 million subs, it’s the second consecutive quarter the company has failed to hit their subscriber target.
In the U.S., the company boasted net adds of 500,000, not quite reaching the 800,000 mark it had forecast. Year to date, U.S. net adds for the company are 2.1 million compared to 4.1 million in the first nine months of 2018.
Netflix admitted it’s continuing to feel heat from the price increase it instituted in the U.S. earlier this year, resulting in slower membership growth. However, the company also shared that ARPU for U.S. customers has seen a 16.5% year over year increase this past quarter, thanks to said price increases.
All things considered, the company’s total paid net subscriber adds marked a 12% year over year increase and stands as an all-time Q3 record for the company. The company racked up $5.2 billion in revenue in the three-month period, a 31% increase over the prior year. Its consolidated revenue growth was 35%, while streaming ARPU stood at 12%.
“It was a really strong quarter, not just around subscribers but overall business performance,” Netflix CFO Spencer Neumann said during the quarterly online interview the company does when it releases its numbers. “It was record revenues for Q3, record operating profit of nearly $1 billion and record paid net adds for the quarter.”
Asked if he felt 2018 would represent a peak year for net member adds and whether he felt the company would be able to match those results in the future, Neumann said there are a number of variables in Q4 that make it difficult for the company to forecast.
“Obviously, there are a few new competitors launching [in Q4]. Inevitably, there’s bound to be some curiosity and trial of those service offerings,” he said.
“There’s a little more sensitivity [with regards to pricing],” added CEO Reed Hastings. Disney+ is launching November 12th at US$6.99/month and Apple’s new service will be US$4.99 when it goes live November 1st, while Netflix’s plans range from US$8.99 to US$13.99/mo. “What we have to do is focus on the service quality and make us must-have. We’re incredibly low-priced compared to cable, we’re winning more and more viewing so we think we have a lot of room there.”
(Ed note: Traditional pay-TV like cable also offers far, far more content, and far more variety than does Netflix.)
With both Apple and Disney slated to launch their highly anticipated streaming services next month, Hastings insists the very notion of Netflix being in competition with other services is not something new to the company.
A survey taken this past August reported 30% of online Canadians expressed an interest in the Disney+ offering, meaning competition will be fierce.
“From when we began in streaming, Hulu, YouTube and Amazon Prime were all in the market in 2007-08,” he said. “All four of us have been competing heavily, including with linear television for the last 12 years, so fundamentally, there’s not a big change here. It’s interesting that we see Apple and Disney basically launching the same week after 12 years of not being in the market. Disney is going to be a great competitor. Apple is just beginning but they’ll probably have some great shows, too. But again, all of us are competing with linear television and are all relatively small in comparison,” added Hastings.
Asked if the lower price points of competing services such as Disney+ will impact Netflix’s ability to raise prices in the future, chief product officer Greg Peters said he believes the impact will be minimal.
“We don’t feel the pricing of our competitors is a real significant factor in determining what we can charge for our service,” Peters said. “We look at pricing more incrementally and let our subscribers tell us, as we add more value along, where that right price should be.”
Netflix also revealed that starting with its Q4 2019 earnings report, to be issued in January 2020, it will begin disclosing revenue and membership by region: Asia-Pacific (APAC), Europe, Middle East and Africa (EMEA), Latin America and the U.S. and Canada (UCAN).
“As we self-produce and license more original content that has global rights, we are finding U.S. versus international segment contribution margin reporting is becoming less useful internally,” the company said.
