Netflix Passes 80 Million Subscribers Following International Push
The streaming giant added 2.23 million subscribers in the U.S. during the first quarter of the year.
Netflix’s global push is starting to pay off.
The streamer surpassed 80 million subscribers worldwide during the first quarter of the year thanks to its aggressive launch in 130 new countries in January. It now has 81.5 million total members, up more than 6 million from its 74.8 million members at the end of last year.
Los Gatos, Calif.-based Netflix added 2.23 million members in the U.S. during the quarter, well above the 1.82 million that Wall Street was expecting. Meanwhile, it brought in 4.51 million new subscribers internationally, up from the anticipated 4.49 million additions.
But the gains weren’t enough to keep investors from worrying about its long-term subscriber growth rates. Netflix is expecting to add just 2.5 million new members in the current quarter, a forecast that contributed to the company’s more than 12 percent stock plunge during after-hours trading on Monday.
Subscriber growth is a focus because Netflix’s domestic growth had slowed in recent quarters as its business has matured. Adding to the pressure is the increasingly competitive streaming video landscape. Netflix reported earnings just one day after Amazon took a swing at the streaming giant with the introduction of a standalone Prime Video plan priced at $8.99 a month, a move that RBC Capital Markets' Mark Mahaney called "a significant negative development” for the streaming giant. Amazon's move also comes ahead of Netflix's plan to increase prices for existing customers to its standard plan to $9.99 beginning in May.
Netflix is raising its prices as it continues to bulk on on original content, including movie acquisitions and local foreign language fare. During the first quarter alone it launched several new series, including Fuller House and the fourth season of House of Cards.
Revenue for the quarter jumped 29 percent year-over-year to $1.81 million, below the $1.97 million that analysts anticipated. Netflix reported earnings of 6 cents per share.
CEO Reed Hastings, speaking on a video call with investors alongside content chief Ted Sarandos and CFO David Wells, called the quarter “enormous” for Netflix, adding that he anticipates continued growth as Netflix’s push into new markets begins to reach its full potential through more local language content. He even predicted that Netflix will surpass 100 million total subscribers sometime in 2017.
Here are the highlights from the call, during which executives opened up about the competition, why they’re raising prices and whether the NFL could ever come to Netflix.
Open those Wallets
Beginning May 9, Netflix will increase prices for existing customers. New customers to Netflix have been paying $9.99 since the price increase was implemented last September, but existing members have been grandfathered in to lower prices. The earliest customers have been paying just $7.99 for the two-screen plan, while customers who signed up after May 2014 have been paying $8.99. Netflix will not immediately raise prices on all customers, noting in its letter to shareholders that the “longest-tenured members” will get “the longest benefit.” Wells said that it’s “important to us to make sure that subscribers knew that this was happening.”
Netflix knows that it competes with a number of other entertainment outlets for time and attention but it isn’t making a big deal out of its competition with Amazon, which on Sunday night took a swing at the streaming giant by launching its standalone Prime Video plan. But Hastings noted that it’s just one of several outlets that compete with Netflix for viewers. “Everyone is working hard to build the best content,” he said, adding that it’s “all part of the natural evolution from linear TV to internet TV.” When asked about HBO Now’s 800,000 subscribers later in the call, he said he was a bit surprised by how small the initial subscriber base is. “I think it’s a great product. I use it all the time,” he acknowledged. “But then, I’m pretty internet-centric.”
No Live Sports
Everyone from Facebook to YouTube to Amazon to Twitter is investing in live broadcasting, but Sarandos put rumors to rest on Monday when he said that Netflix has “no interest in live sports, currently.” He pointed out that Chelsea Handler’s upcoming talk show, Chelsea, which premieres May 11, will be “near live.” That means it will be filmed mere hours before it goes up on Netflix. “There isn’t a technological reason we wouldn’t want to go live,” he added. “But our brand proposition is about on demand. “
What About Paramount?
With a market cap of $46.4 billion and more than $1.6 billion in cash, Netflix could easily make a play for Paramount. Studio owner Viacom announced it would explore the sale of a minority stake earlier this year, but don’t count on Netflix to make a bid. The streamer has been a public company for 15 years and Hastings noted that “we’ve done no M&A, so that probably speaks for itself.” Sarandos added that Netflix is increasingly becoming the studio for its originals but that instead of acquiring production infrastructure, he plans on “building that efficiency in house.”
Future of Streaming
Netflix has held out on making its content available for offline viewing, when episodes can be downloaded directly to a device for consumption, even as competitors including Amazon and YouTube have added the feature. Now it might be warming to the idea. “We should keep an open mind about this,” said Hastings. “We’ve been so focused on click-and-watch and the beauty and simplicity of streaming. As we expand around the world where we see uneven networks, it’s something we should keep an open mind about.” But he’s less convinced that virtual reality will impact his business anytime soon. “It’s mostly going to be an intense gaming format for a couple of years,” he noted, adding that he doesn’t expect it to be a popular means of watching entertainment content in the near term. “It won’t have an effect on us for a couple of years.”