News and Analysis
Netflix yesterday reported an increase in both revenue and net income for the first quarter, but analysts seemed more interested in discussing the company’s decline in subscriber growth.
And that’s quite understandable.
Click Amazon: See Today’s Hottest New Releases!
Netflix added a net of 1.42 million streaming subscribers domestically in the first quarter, compared to analyst estimates of somewhere between 1.5 million and 1.6 million. The first quarter nets were down sharply from last year’s first quarter when Netflix added 2.23 million in the U.S.
Internationally, the company added a net of 3.53 million new customers, compared to analyst estimates of around 3.7 million, and last year’s first quarter when it added 4.5 million outside of the U.S.
While Netflix overall added a net of nearly five million subscribers in this year’s first quarter, the decline from last year when it added 6.7 million has some wondering if the company has cause for concern.
Click Amazon: Today’s Hottest Deals!
I won’t address Netflix’s international initiatives here; frankly, my expertise outside of the United States is limited. But I can offer a reason — in fact, four reasons — why Netflix’s subscription growth is slowing here, and may slow even further in future quarters.
1. Questionable Content Choices
With the debut of the critically-acclaimed drama, House of Cards, in February 2013, Netflix began developing a reputation as peerless picker of pleasing programs. The premiere of Orange Is the New Black in the summer of 2013 continued that theme. So, some consumers began subscribing to Netflix because they wanted to see its buzz-generating original shows, which were not available anywhere else.
Netflix CEO Reed Hastings yesterday attributed the first quarter decline in sub growth in part to the company’s decision to hold the latest season of House of Cards to the second quarter. But there’s more going on here than the placement of a single show.
In the last few years, critics have been less kind to Netflix’s programming choices, particularly the artistic direction of House of Cards in seasons three and four. Other Netflix originals such as Marco Polo and the never-ending string of Adam Sandler comedies have been duds.
Netflix’s strategy of developing original programming to distinguish itself from other pay TV services is undergoing some growing pains now. If the shows are not good, or if they are just so-so, people will not stick around.
Click Amazon: Best Deals in Outdoor Gear & Apparel!
2. Content Gap Narrowing
For a few years, most consumers knew that Netflix had a larger library of programming than its chief rivals, Hulu and Amazon. But the two rivals have beefed up their lineups and arguably now offer an even better variety of programming, including original shows. Consumers have caught on and some are switching services.
3. Saturation Point
Do you know anyone who hasn’t subscribed to Netflix, or currently subscribes? With roughly 50 million subscribers in the United States, the company may have reached a saturation point. It’s hard to grow when the potential audience of customers is shrinking.
Click Amazon: Best Deals In Motorcycles & Power Sports!
4. Increased Competition
The streaming category has exploded in the last year or two with companies such as HBO, Showtime, Dish (via Sling TV), Google (YouTube TV), Sony (Play Station Vue), Starz, AT&T’s DIRECTV and NBC (and many others) launching online services. In addition, as noted before, Hulu and Amazon Prime have aggressively expanded their programming lineups.
Netflix is no longer the default choice of new streamers. There are now simply too many choices for any one company to dominate, as Netflix has for the last several years.
So, bottom line. Netflix would love for everyone to believe that the return of House of Cards will bring back a return in meteoric growth. However, the problems now facing Netflix in the United States are far greater than one show, which suggests that more slow growth, or even no growth, could be in its future.
— Phillip Swann