“We are growing, but not as fast as we would like or have been.”
That’s the verdict Netflix sent to shareholders in a letter published following the release of the SVOD giant’s Q2 earnings report on July 18.
While the California-based company’s quarterly global revenue (US$1.96 billion) remained in line with the forecasts projected in Q1, new subscribers, as well as total profits, did not meet projections.
Netflix added 1.7 million subscribers globally—with 1.5 million coming from outside the US—over the quarter, finishing with more than 83 million members worldwide. Three months ago the SVOD had forecast the addition of 2.5 million new members. In Q2 2015, Netflix reported the acquisition of 3.3 million new subscribers globally.
The most recent quarter was one of Netflix’s lowest growth periods for domestic subscribers, with only 160,000 new US members joining the service, well below the predicted 500,000 new US subscribers.
In its letter to shareholders, the company stated that there was some “unexpected churn,” with previous customers choosing to end their Netflix subscriptions (although the number of customers who left the service was not specified in the net additions). The company attributed much of the churn to a highly publicized increase in prices.
While the price hike from US$7.99 to US$9.99 per month had initially been implemented in 2014 for new customers, existing Netflix customers, whose lower prices had been grandfathered for two years, saw monthly sub costs go up in April.
As for the growth in competition—not only from the likes of new players like Fullscreen and YouTube Red, but also from established SVODs like Amazon, which recently added a monthly subscription option, and Hulu, which has been on a major acquisition spree as of late—Netflix doesn’t believe those parties played a major role in its Q2 misses.
While some in the industry have speculated that the VOD market is approaching saturation and is heading toward a slowdown, Netflix is shrugging it off. Netflix says it has observed similar performances over multiple international territories with differing levels of Netflix penetration, and where fewer competitors are available.
International subscriber acquisitions also fell short, with Netflix adding 1.52 million international members, compared to a predicted two million. Netflix now has 33.58 million members living outside of the US.
International operations losses, meanwhile, were not as significant as expected. Despite its expansion into 90 new territories earlier this year, Netflix pulled in US$758 million in international revenue (projected in Q1 at US$754 million) with an operating loss of US$69 million. (Netflix had predicted a loss of US$80 million in April.)
Looking ahead, Netflix’s Q3 predictions are on the modest side. The SVOD is estimating the addition of just 300,000 US subscribers as grandfathered pricing continues to be eliminated. It also predicts the 2016 Rio Olympics will draw more eyeballs to broadcast TV and take them away from SVOD services, a pattern Netflix observed during the 2012 games.
As for its international strategy, the idea is to make the service friendlier to subscribers with the addition of local languages in the user interface, subtitles and dubbing. The company expects to localize the service in Poland and Turkey in Q3. Over the past six months, it has also announced a number of non-English-language original series and films in its international territories, including Brazil, Germany, India, Italy, Japan and more.
Netflix has also been active in acquiring exclusive, licensed content and boosting its lineup of new original kids series—including the live-action tween drama The Greenhouse, animated series Stretch Armstrong and a musical update of MGA Entertainment’s toy-based property Lalaloopsy. And just last month, Netflix paired with The Jim Henson Company to produce Julie’s Greenroom, a new 13 x half-hour preschool show co-created by and starring Oscar winner Julie Andrews and a cast of original puppet kids.