Netflix may have missed out on its subscriber targets for the first quarter of 2017 by a small margin, but by the time this article goes to press, the SVoD giant will be knocking on the door of the 100 million subscriber milestone – an achievement which deserves widespread recognition as the company approaches its 10th birthday.
Netflix added 4.95 million subscribers in Q1 2017, to end the period with a total subscriber base of 98.75 million in the US and internationally, of which 94.36 million are paid memberships.
Its international subscriber base grew by 3.53 million in the quarter to total 47.89 million, a number which is poised to overtake its 50.85 million strong domestic membership very soon. International memberships are growing at an impressive pace, adding 13.54 million users outside of the US in a year.
Netflix CEO Reed Hastings spoke proudly of his company’s imminent 100 million subscriber achievement during this week’s earnings call, but on several occasions the founder dulled down the accomplishment by comparing its KPIs to those of YouTube, which receives around 1 billion views every day, compared to Netflix’s 1 billion views a week.
Hastings pointed out that his “YouTube envy” acts as a driving factor for how much potential the internet has left to offer, not just in growing Netflix’s international subscriber base, but also in the US where there is still room for expansion.
As for the next 100 million subscribers, Hastings believes Netflix can achieve this in a shorter period than the 10 years it took to acquire the first 100 million, and we think people would be brave to doubt it.
Netflix has achieved unprecedented success due to its aggressive global strategy as well as through hefty investments in original content, most of which have paid off. Meanwhile, the network improvements being made in emerging markets will create entirely new pockets of opportunity there for the taking.
Netflix’s Chief Content Officer, Ted Sarandos, noted that Netflix’s next 100 million subscribers are going to be far more likely to be watching content on mobile than the first 100 million. Faultline has talked for a while now about such a tipping point, when data is cheap enough and networks fast enough, something that 4G is making possible and 5G will complete.
To prepare for this, Netflix’s R&D department is developing experimental variations for aspect ratios to make content originally developed for wide screen movie theaters look as appealing as possible on the screens of mobile devices.
After a slow start in Asia, Netflix has begun investing in local productions, but Amazon is matching Netflix move for move, and could even go a step ahead with rumors that it is preparing to start up a studio in India – where it is also priced competitively lower than Netflix. We predict that Netflix will begin to lower its prices gradually across Asia as it looks to expand its appeal beyond the high earning households. Hastings gave little away about the specific regional performance activities during the call, particularly in Asia where it announced its full launch in January last year.
However, it is neither Amazon or YouTube which pose the greatest threat to Netflix. According to Hastings, the company’s biggest barrier to overcome is the human need for sleep. “When you watch a show from Netflix and you get addicted to it, you stay up late at night. We’re competing with sleep, on the margin. And so, it’s a very large pool of time,” he said.
Concerning future strategies or any scope for diversifying business models, the company again denied that it would follow in the footsteps of Amazon and embark on live streaming ventures – its focus is firmly in on-demand content, for the time being.
Netflix recently announced its re-encoding plans, as part of its work with the Alliance for Open Media (AOMedia), which was due to launch back in March. The AV1 royalty free codec has since been pushed out to the end of this year, while commercial implementations could take yet another year. “There is no complete when you get to encoding. You just keep getting better and better,” commented Hastings when asked by conference call participants about the delay.
Netflix recorded revenues of $2.64 billion for the first quarter of 2017, rising from $1.96 billion for the same period last year. Net income was $178.2 million, up by over $150 million from Q1 2016.