Netflix smashes expectations, plans 50% original content next year

Oct 18, 2017 | E-commerce and E-retailing, Online video

Netflix added more new subscribers than expected in the third quarter of this year, gaining 5.3 million subscribers, compared to Wall Street’s estimation of 4.5 million.

850,000 new subscribers came from the US, with 4.45 million from the rest of the world.

Revenue rose by 30 per cent to $2.99bn while net income rose to $130m, compared to $52m this time last year.

The company said it will spend more towards producing and buying new content, adding between $7bn (£5.28bn) and $8bn towards next year’s content budget.

The ultimate goal, reiterated by Netflix executives, is a library containing 50 percent original TV and film content by the end of next year.

In a letter to shareholders, Netflix said: “As we move into 2018, we aim to achieve steady improvement in international profitability and a growing operating margin as our success in many large markets helps fund investments throughout Asia and the rest of the world”.

It added that competition from rivals Amazon Prime, as well established companies such as Walt Disney, which is deciding to launch its own video streaming service, puts pressure on Netflix.

“We have a good head start but our job is to improve Netflix as rapidly as possible,” the company said.

According to Reuters, Netflix are unlikely to make a bid for the Weinstein Company if the opportunity arose. Following the firing of Harvey Weinstein, the company is in talks to sell its assets.

Netflix shares reached a record high on Monday, according to Reuters. Shares are up by 64 per cent this year in total.

Analysis

Here’s contextual user trends (among people 18+) over the last quarter (June to Sept) from Verto Analytics:

  • Netflix’ US audience jumped by 7.7% / 3.7 million people – now reaching 25% of the US online population. The UK saw a huge 24.8% / 1.4 million increase to 16% reach
  • It saw particularly strong growth in the US among 25-34 year olds (up 22%) and people 55 and older (up 15%) but saw a 5% decline in 18-24s. Consequently, a quarter of Netflix US’ audience is now at least 55 years old
  • Average viewership time fell 5% in the US to 179 minutes per month, compared to 210 minutes in the UK.

Commenting on the figures, Dr Hannu Verkasalo, Verto Analytics’ CEO, said: “The key to Netflix’s continued growth has been to “mature” its audience beyond the young and tech-centric early adopters, indicated by a quarter of its US audience being at least 55 years old. It’s also employed a sensitive product strategy – looking at competitors to see what features fail and succeed, before introducing new ones. For instance, it wasn’t the first to introduce downloadable offline videos, but did so after Amazon proved consumers like it.”

“This highly-focused strategy of expanding the subscriber pool and fine-tuning the user experience, whilst developing original content, has kept them ahead of the game, however, the slight decrease in time indicates the competition between emerging platforms like Hulu – whose audience has nearly doubled in the last year – HBO Go and Sling TV. Original programming such as Hulu’s The Handmaid’s Tale and HBO’s Big Little Lies sweeping the Emmys, demonstrates they’re forces to be reckoned with. Netflix’s CEO may regret his comment earlier this year that the #1 competition is sleep.”

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