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Netflix Loses Subscribers in U.S. as Growth Slows After Netflix’s Prices Go Up, Its U.S. Subscriptions Go Down
(32 minutes later)
Netflix, the streaming juggernaut that has upended the entertainment industry, showed signs of vulnerability Wednesday when it reported that it had lost 126,000 paid subscribers in the United States during the second quarter. It was the first time it had shed domestic streaming customers since it started its digital service 12 years ago. Netflix, the streaming juggernaut that has upended the entertainment industry, showed signs of vulnerability Wednesday when it reported that it had lost 126,000 paid subscribers in the United States during the second quarter. It was the first time the company had shed domestic streaming customers since it started its digital service 12 years ago.
The company also said in its report to shareholders that it had significantly undershot the number of subscribers it expected to sign up for the period. Netflix added 2.7 million customers worldwide for the three months ending in June, well short of the five million expected by investors and down from the 5.5. million it had brought aboard in the first quarter. The number of those subscribers dropped during a time when the price for Netflix went up. In January, the company announced that it was raising its rates by anywhere from 13 to 18 percent, depending on the subscription plan, with the increases hitting existing subscribers in March.
The company’s stock fell more than 10 percent after the market closed, a drop of more than $17 billion in market value. The second quarter is typically Netflix’s weakest time of year, but its performance this time was unusually poor. In its letter to shareholders on Wednesday, the company acknowledged that the higher subscription cost had something to do with its failure to meet second-quarter expectations.
The second quarter is typically the company’s weakest time of year, but its performance this time was unusually poor. Netflix announced in January that it was raising prices by anywhere from 13 to 18 percent, depending on the subscription plan, with increases hitting existing subscribers in late March. In its statement on its second-quarter earnings, the company acknowledged that the higher rates had something to do with its failure to meet expectations. Netflix also noted that its second-quarter slate of programming, lacking fresh episodes of two of its original hits, “The Crown” and “Stranger Things,” was not as robust as it had been the previous quarter, which most likely figured in the disappointing results.
Netflix decided to charge more at least partly because it burns a lot of cash, much of it borrowed, and spends wildly on Hollywood talent. The company tends to raise its prices around every 18 months. In addition to losing domestic subscribers, Netflix significantly undershot the number of customers it had expected to sign up worldwide for the period. The company reported that it had added a total of 2.7 million subscribers for the three months ending in June, well short of the five million expected by investors and down from the 5.5. million it had brought aboard in the first quarter.
Reed Hastings, the chief executive, brushed off the weak second-quarter performance. “Our position is excellent,” he said on a call with analysts after the release of the earnings report. He went on to list the company’s prospects: “We’re building an amazing capacity for content. Our products have never been in better shape.” Netflix stock fell more than 10 percent after the market closed, a drop of more than $17 billion in market value. Reed Hastings, the chief executive, brushed off the weak second-quarter performance. “Our position is excellent,” he said on a call with analysts after the release of the earnings report.
Netflix remains the nation’s largest internet television network, with over 60 million paying subscribers in the United States. The company has said it could ultimately grab as many as 90 million total domestic customers. The company, based in Los Gatos, Calif., tends to raise its prices around every 18 months. It decided on the latest increase at least partly because it burns a lot of cash, much of it borrowed, spending wildly on Hollywood talent and lavish promotional events.
Globally, Netflix is most likely the largest streaming business, with more than 151 million subscribers. Its growth will largely come outside the United States, with India representing its best opportunity, given its size. Netflix has given up on entering the Chinese market after difficulties with regulators there. Netflix remains the nation’s largest internet television network, with over 60 million paying subscribers in the United States. The company has said it could ultimately bring in as many as 90 million total domestic customers.
The company’s dominance prompted more established media giants to switch their formulas to embark on streaming services of their own. After AT&T acquired Time Warner, the parent company of HBO and Turner Broadcasting, it announced plans for a streaming service — HBO Max — that will start next year. Globally, Netflix is most likely the largest streaming business, with more than 151 million subscribers. Its future growth will largely come outside the United States, with India representing its best opportunity. Netflix has given up on entering the Chinese market after difficulties with regulators there.
Rupert Murdoch cashed out the bulk of his media empire to the Walt Disney Company, which will unveil its new streaming product, Disney Plus, by November. Apple has also gotten in on the game, spending more than $1 billion on Hollywood talent for Apple TV Plus, which is scheduled for a fall debut. The company’s dominance has prompted more established media giants to embark on streaming services of their own. AT&T, which acquired HBO and Turner Broadcasting as part of its $85.4 billion purchase of Time Warner last year, announced plans this month for a streaming service — HBO Max — that will start next year.
“It’s not a zero-sum competition,” Mr. Hastings said. “People will subscribe to multiple shows. I’d wager that most Netflix employees are HBO subscribers.” He added that the media narrative around the so-called streaming wars would only help Netflix. The Walt Disney Company will also go big on streaming, with plans to fill an expansive new streaming product, Disney Plus, with franchises like “The Avengers” and “Star Wars.” It will also offer the many television shows and films it picked up when it bought the bulk of Rupert Murdoch’s 21st Century Fox entertainment empire for $71.3 billion in a deal that closed in March.
“It draws more attention, and because of that consumers shift more quickly from linear TV to streaming TV,” he said, referring to traditional television. Adding to the competition, Apple is shifting away from its focus on hardware to spend more than $1 billion on Hollywood talent as it enters into the entertainment business with Apple TV Plus. That streaming service, with new content from a roster of talent that includes Oprah Winfrey, Steven Spielberg and Reese Witherspoon, is scheduled for a fall debut.
As part of its effort to ramp up its original offerings last year, Netflix signed Ryan Murphy, the prolific producer behind “Glee” and the anthology series “American Crime Story” and “American Horror Story,” to a five-year deal said to be worth nearly $300 million. “It’s not a zero-sum competition,” Mr. Hastings said on Wednesday. “People will subscribe to multiple shows. I’d wager that most Netflix employees are HBO subscribers.”
After wooing him away from 21st Century Fox, Netflix signed another name producer, Shonda Rhimes, the creator of ABC’s “Grey’s Anatomy,” away from the Walt Disney Company, giving her a nine-figure deal. As part of its effort to ramp up its original offerings last year, Netflix signed Ryan Murphy, the prolific producer behind “Glee” and the anthology series “American Crime Story,” to a five-year deal said to be worth nearly $300 million. After wooing him away from 21st Century Fox, the company signed another name producer, Shonda Rhimes, the creator of ABC’s “Grey’s Anatomy,” giving her a nine-figure deal.
Netflix released its second-quarter report a little more than a week after the news that it would lose the North American rights to “Friends,” the NBC sitcom that has had a highly remunerative afterlife in syndication and online.Netflix released its second-quarter report a little more than a week after the news that it would lose the North American rights to “Friends,” the NBC sitcom that has had a highly remunerative afterlife in syndication and online.
“Friends” was the second-most-watched show on Netflix in 2018, according to Nielsen, which is probably why the company was willing to pay as much as $100 million to stream the show worldwide in 2019. But starting next year, American and Canadian customers will be able to find it only on HBO Max after AT&T exercised an option worth over $80 million a year for a five-year period to keep it exclusively on its forthcoming streaming service. Netflix will still have rights to “Friends” internationally. “Friends” was the second-most-watched show on Netflix in 2018, according to Nielsen, which is probably why the company was willing to pay as much as $100 million to stream the show worldwide in 2019.
Also beginning in 2020, Netflix’s North American subscribers will have to go elsewhere for “The Office,” another NBC show that has shown durability as a rerun. NBCUniversal, which owns the show, grabbed the rights to stream it in North America after agreeing to pay $100 million a year for the next five years. Netflix lost out after coming in under that amount. Starting next year, American and Canadian customers will be able to find it only on HBO Max, after AT&T exercised an option worth over $80 million a year for a five-year period. Netflix will still have rights to “Friends” internationally.
The streaming giant is likely to spend those dollars on more original and fully owned shows and films. Also beginning in 2020, Netflix’s North American subscribers will have to go elsewhere for “The Office,” another NBC show that has shown durability as a rerun. NBCUniversal, the show’s owner and another entrant into the streaming competition, grabbed the rights to stream it in North America after agreeing to pay $100 million a year for the next five years.
Netflix noted in its report that its second-quarter slate of programming, lacking fresh episodes of two of its original hits, “The Crown” and “Stranger Things,” was not as robust as it had been the previous quarter. Despite the second-quarter slowdown, Netflix forecast that it would add more than seven million subscribers in the current quarter, when the new season of “Stranger Things” was made available.
It also forecast subscriber gains for the current quarter, when the new season of “Stranger Things” was made available. The company said it expected to add more than seven million customers during the summer months.