On July 17, the company released its Q2 shareholder letter and reported a nearly 50% miss on projected paid subscriber growth, writing, “Paid membership grew by 2.7m, less than the 5.5m in Q2 a year ago and our 5.0m forecast.”
The miss precipitated a more than 10% plummet in Netflix stock, as investors are left asking: Why the sudden drop in subscriber growth?
According to Netflix’s shareholder letter, the drop comes down to Q2’s content enticing fewer viewers than expected, and a price hike for Netflix subscriptions turning off some users. The silver lining, it suggests, is that “much of our domestic, and eventually global, Disney catalog, as well as Friends, The Office, and some other licensed content will wind down over the coming years, freeing up budget for more original content…From what we’ve seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or 2nd run series from Fox, for example) our members shift over to enjoying our other great content.”
Netflix may remain confident in its continued shift away from aggregating licensed content and toward producing original work, but other companies are smelling blood in the water. While competitors that dominate headlines are typically entrenched giants—Disney, NBC, HBO, as well as tech companies like YouTube and Apple—there is a newer crop of startups growing in the space, as well:
- Tubi, an ad-supported free streaming platform, plans to spend over $100 million on content in 2019, having already licensed The Bachelor this year.
- Viacom closed a $340 million acquisition of Pluto TV, a Tubi competitor, in March.
- Overtime, a sports-focused streaming service, announced a $23 million Series B in February.
For a long time, it seemed as if Netflix had the media world in its grip, licensing the most popular content, producing even more on its own, and offering it all ads-free for a low subscription price.
But as licensing costs (and Netflix subscription prices) have increased, the market is fragmenting. Users are switching to other services or turning to piracy instead of paying for multiple streaming subscriptions. For the first time in a while, there is room to build in Netflix’s shadow
