Commentary on some of the interesting numbers from the Q3 2016 Netflix earnings release
(Photo credit: Flickr/morebyless under CC-BY 2.0)
Netflix released their third quarter results on October 17, 2016. The shareholder letter begins by crediting the company’s quarterly streaming revenue of over $2B in part to its “strong content slate including Stranger Things and the second season of Narcos.” However, the story was more nuanced in the earnings interview with the Netflix executive team.
CEO Reed Hastings focused some of his early commentary on the broader forces driving subscriber growth. While he also cited the success of Netflix’s original content as a contributing factor, he advised against focusing on the “microvariables” behind subscriber growth (‘net adds.’) In Hastings’ view, strong original content is only a small driver of annual net adds. He instead attributed much of the subscriber growth to the overall media landscape. Hastings referenced the “fundamental growth cycle” related to “the deep force that’s changing the market as people get used to internet television.”
This quarter Netflix reported 46.5M paid U.S. streaming subscribers. The company added .4M new U.S. subscribers this quarter and 2.8M net adds year-to-date. These numbers are contextually impressive.
In Q2 2016, SNL Kagan estimated there were 95.7M total residential video subscribers in the United States. That’s 95.7M aggregate subscribers across all traditional cable, satellite, and telco video providers (and does not include online video providers like Netflix.) Furthermore, traditional video providers have a weak trajectory. In total they lost .8M subscribers between Q1 and Q2 2016, and in fact haven’t had a positive quarter for collective net adds since Q1 2014.
This means that as a rough rule of thumb, for every two households in the U.S. that have a traditional paid tv subscription with any provider there is one household with a Netflix streaming subscription. This is not to say that there is no overlap between these groups; many people have both. Rather, this is to give a sense of scale behind Netflix’s substantial penetration in the market.
Another area of interest from Netflix’s earnings release was the executive team’s commentary around the company’s global reach. Netflix launched in more than 130 countries early in 2016 and is now available in 22 languages. Hastings cited YouTube’s 50 language offerings as the company’s competitive benchmark in this area.
While there is continued effort to provide more content in local languages, it was interesting to hear about the reach of existing programs. While declining to give country-specific details, CFO David Wells confirmed the company’s success was due to “broad-based performance across multiple markets.” Chief Content Officer Ted Sarandos said, “our big series that we had going on in the quarter – Luke Cage, Stranger Things, The Get Down, and Nacros, of course – performed proportionately well globally. The content is traveling in a way that we’d hoped.”
We at RedMonk can anecdotally attest to this phenomenon, as we’ve now expressed our collective love for Stranger Things via our conferences on two continents.