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Stream Wars: Netflix' shrinking growth figures

18.7.2019

Translation: Patrik Stainbrook

For the quarter of April through June 2019, Netflix has received fewer new subscribers than expected. But, according to Netflix founder and CEO Reed Hastings, this isn't to blame on other streaming services.

Netflix gained significantly fewer subscribers than expected in the second quarter of 2019. The stock market has reacted accordingly. Or Netflix investors at the least. According to the Hollywood Reporter, the number of Netflix subscriptions between April and June 2019 grew by «only» 2.7 million.

Reed Hastings, Netflix Founder and CEO
Source: Rex / Shutterstock

Originally, 5 million new subscriptions were forecast. The same period a year before experienced growth of 5.5 million subscriptions. In Netflix's most important market, the USA, the number of subscriptions is said to have dropped by 130 thousand – for the first time in years. And with concerns about increasing competition not lessening, the company's value has currently dropped by 12 percent. Apocalyptic.

Nevertheless, Netflix CEO Reed Hastings doesn't believe the reason for this recent nosedive to be a so-called «Streaming War». He sees the problem elsewhere.

Are the glory days over?

To Hastings, it's clear that in terms of growth figures, this damper has nothing to do with the threat from competition. In an open letter to investors, he appeared optimistic:

Over the next 12 months, Disney, Apple, WarnerMedia, NBCU and others are joining Hulu, Amazon, BBC, Hotstar, YouTube, Netflix, and many others in offering streaming entertainment. The competition for winning consumers’ relaxation time is fierce for all companies and great for consumers.

Reed Hastings in an open letter to investors.

So there is some sort of «Streaming War» after all. However, the Netflix founder presents this situation as if it were something positive for all companies:

The innovation of streaming services is also drawing consumers to shift more and more from linear television to streaming entertainment. If you watch Our Planet on a new TV with Dolby Vision or HDR10, you will see why: the quality of streaming television is spectacular.

Reed Hastings in an open letter to investors.

So in essence, the cake with more slices won't have to stay the same size – a fitting analogy by German-speaking user danielrose1 from this article. Instead, the cake will automatically get bigger the more people notice how tasty it is. In fact:

We’ve been moving our content from semi-exclusive catalog and 2nd-window unbranded content to branded exclusive 1st window original content for many years. Much of our domestic, and eventually global, Disney catalog, as well as Friends, The Office, and some other licensed content will wind down over the coming years, freeing up budget for more original content.

Reed Hastings in an open letter to investors.

Makes sense – even if Netflix hardly gave away this 3rd party content as easily as Hastings would have investors believe. But with all the royalties Netflix would save from not dragging along «Star Wars», the platform could simply produce its own space opera. Such as the very popular «Lost in Space» with a 73% viewer score on Rotten Tomatoes.

We don’t have material viewing concentration as even our largest titles (that are watched by millions of members) account for only alow single digit percentage of streaming hours. From what we’ve seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or 2nd run series from Fox, for example) our members shift over to enjoying our other great content.

Reed Hastings in an open letter to investors.

Makes sense as well. In any case, Hastings' theory is supported by the fact that the current market situation hasn't yet changed much, at least not in the second quarter of 2019: Disney Plus won't be launched in the United States until autumn. WarnerMedia’s «HBO Max» is still scheduled for next year.

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Blaming floundering growth figures on competitive pressure seems illogical – at least for now.

Shrinking growth: only Netflix to blame

Then why did Netflix's forecasts fail? Reed Hastings attributes the shrinking growth mainly to the recent [price increases] (https://www.theverge.com/2019/5/30/18646224/netflix-uk-subscriber-price-increase-streaming). This has been the case in almost all regions in which Netflix is offered. Including the USA, Germany and Switzerland as well.

In addition, the second quarter «simply didn't provide a show that could have contributed to growth,» according to Hastings. Not that the existing movies or series aren't popular. Adam Sandler's «Murder Mystery», for example, had been the most viewed Netflix film of all time, with over 30 million viewings in the first month. But shows launched in the second quarter simply attracted fewer new subscribers than expected. Hastings mentioned «bad programming.»

Which means as much as: it was our own stupid fault.

Netflix: «Tis but a scratch»

«There wasn't one thing that ruined our forecasts,» says the Netflix CEO, not wanting to ramble on it for long and immediately pointing to the next quarter. As thanks to the start of the third season of «Stranger Things», Netflix is already «going strong» again. Add to that the final seasons of «The Crown» and «Orange Is the New Black».

So was this all just a little stumble? We won't get an answer to that until Apple, Disney Plus and HBO Max, the main competitors to Netflix and Prime Video at the moment, start cutting the cake.

Be that as it may: I'll keep you up to date. If you’d like to be informed about more behind-the-scenes news from the world of cinema and TV series, follow me by clicking on the «Follow author» button.

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Luca Fontana

Senior Editor

Luca.Fontana@digitecgalaxus.ch

I write about technology as if it were cinema, and about films as if they were real life. Between bits and blockbusters, I’m after stories that move people, not just generate clicks. And yes – sometimes I listen to film scores louder than I probably should.

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