Netflix has more than 150 million paid subscribers, so one bad quarter in itself is not the end of the world. However, the worlds leading streaming service faces fierce and growing competition from many media conglomerates and tech giants, which makes this first loss since 2011 awful news.
The Current Decline
In Q2, Netflix lost 126,000 subscribers. They also only gained 2.8 million new subscribers outside the US, compared to a forecast of 5 million. This miss was mainly due to Netflix’s price increase at the start of the year. Netflix stated that their missed forecast occurred across all countries, but was slightly more prevalent in areas affected by the price increase.
Irrespective of this, Netflix still managed to attain 150 million paid global subscribers for the first time ever. This growth was mainly borne by international subscribers, which now sits at over 90 million, accounting for 60% of Netflix’s subscriber base. This represents a 40% hike from 2016 figures. Between Q1 and Q2, US subscribers fell from 60.2 million to 60.1 million.
Netflix feels that one quarter is a mere blip in the grand scheme of this. Due to the release of Season 3 of Stranger Things, they are still projecting an additional 7 million subscribers for Q3. Their viewership records were broken when the “Netflix original” sci-fi, thriller set in the 1980s hit our screens.
The increased competition within the streaming market has already cost Netflix its two most popular shows, namely Friends and The Office. All this makes some people question whether their Q3 expectations are just wishful thinking and overly optimistic.
Competition comes from streaming services like Amazon Prime Video and the Disney-owned Hulu. However, more rivalry is heading their way from a number of new competitors financed by media conglomerates and tech giants. In November Disney+ will launch at $6.99 per month, and HBO Max is believed to debut in 2020. Also, Apple TV+ is due for release this fall.
Netflix has created many original high-quality series and lowbrow movies, investing billions in the process. It has stocked its library in preparation for the day when media firms come after it by reclaiming their licensed shows.
Raising prices has already caused a hit to their subscriber numbers. Soon consumers will be able to choose between multiple streaming services, all with original content and exclusive licenses.
The streaming battle will be expensive to some of these service providers, but for most of them, they have alternative revenue streams as a fallback. Both Amazon and Apple’s cash reserves are in the billions; Disney and Comcast own media empires where streaming apps are only one small part. Netflix has just one business model, paid subscribers.
Netflix has done all it can to prepare for battle. Should Netflix subscribers drop as customers spend that money with the competition, there could be a rocky road ahead for this business? That said, don’t forget that Netflix was born from a DVD delivery service, which again had one business model. They chose to diversify from DVD delivery, on spotting a shift in the market and became the world’s leading streaming service.