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Netflix Misses Q3 U.S. Subscriber Forecast, Citing Price Hike

It's a problem that may resonate down the road; at $12.99 a month, Netflix's price point is already higher than two of its soon-to-launch competitors, Disney+ and Apple TV+.

Maya Hawke and Joe Keery, "Stranger Things"

Maya Hawke and Joe Keery, “Stranger Things”


Netflix gained 517,000 U.S. subscribers during the company’s third fiscal quarter, though the streaming service’s subscriber gains were slightly below expectations. In a letter to shareholders, the company outlined a reversal of fortunes from its Q2 report, where the company reported a loss of 126,000 U.S. subscribers.

However, the company’s Q3 gains were nonetheless lower than its previous forecast of around 800,000 domestic net adds, and Netflix cited its recent price hikes as the reason its domestic subscriber growth has been slow in 2019.

“Since our U.S. price increase earlier this year, retention has not yet fully returned on a sustained basis to pre-price-change levels, which has led to slower U.S. membership growth,” the company said in its Wednesday letter to shareholders.”

It is possible that Netflix’s recent price increase could be a problem point for the company in the months ahead, as new streaming services such as Disney+, Apple TV+, WarnerMedia’s HBO Max, and NBCUniversal’s Peacock release and make the streaming market even more competitive. Though pricing for the latter two services has yet to be revealed, Disney+ and Apple TV+ will cost $6.99 per month and $4.99 per month, respectively. A standard U.S. Netflix subscription costs $12.99 per month.

Netflix told investors the launch of those streaming services may cause Netflix’s short-term growth to slightly slow, though the company expects to continue expanding due to the large size of the market.

“Streaming video services have mostly exclusive content libraries that make them highly differentiated from one another,” Netflix said in its letter to shareholders. “In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on-demand consumption of entertainment. Just like the evolution from broadcast TV to cable, these once-in-a-generation changes are very large and open up big, new opportunities for many players.”

On the plus side, Netflix slightly beat expectations for international subscriber growth: The streaming service added around 6.3 million international subscribers (totaling 6.8 million global adds), which was above the expected 6.2 million, according to the company. Netflix told investors that it is forecasting 600,000 net U.S. subscriptions in Q4 and 7 million in international markets. If the company ends up adding 7.6 million paid subscribers at the end of Q4, that would equate to a notable decrease from Netflix’s 8.8 million paid subscriber additions in Q4 2018.

“While we had previously expected 2019 paid net adds to be up year over year, our current forecast reflects several factors including less precision in our ability to forecast the impact of our Q4 content slate, which consists of several new big IP launches (as opposed to returning seasons), the minor elevated churn in response to some price changes, and new forthcoming competition,” the company said in its shareholder letter.

Netflix has kept busy in recent months, having announced pricey overall deals with the likes of “Game of Thrones” creators David Benioff and D.B. Weiss and “Stranger Things” masterminds Matt and Ross Duffer. “Stranger Things” Season 3 served as Netflix’s breakout show during Q3 and the company said 64 million accounts watched the season in the first four weeks following its premiere. The company also reportedly paid more than $500 million to acquire the streaming rights to classic sitcom “Seinfeld,” which will hit Netflix in 2021. The company did not note any of those developments in its Q3 shareholder letter.

Still, the company noted that it is continuing to prioritize original content in anticipation of popular legacy shows that will soon be leaving Netflix. The streaming service caused a stir over the summer when it was announced that longtime Netflix staples “Friends” and “The Office” would be departing the service and find new streaming homes on HBO Max and Peacock, respectively.

The service will release several original film and television projects in the upcoming quarter, including “The Crown​,” “​The Witcher​”, “​Klaus​,” “​The Irishman​,” ​“The Two Popes​,” and “​6 Underground.”

Investors reacted favorably to Netflix Q3 report; The company’s stock was up more than 8 percent in extended trading Wednesday.

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