Netflix doesn’t expect competition from Disney+, Apple TV+ to materially affect its growth

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MUMBAI: Internet TV network Netflix is unperturbed by the launch of Apple and Disney’s direct-to-consumer subscription video services. The launch of Apple TV+ and Disney+ will benefit content creators and consumers, it added.

“We don’t anticipate that these new entrants will materially affect our growth because the transition from linear to on-demand entertainment is so massive and because of the differing nature of our content offerings. We believe we’ll all continue to grow as we each invest more in content and improve our service and as consumers continue to migrate away from linear viewing (similar to how US cable networks collectively grew for years as viewing shifted from broadcast networks during the 1980s and 1990s),” Netflix said in its letter to shareholders after announcing Q1 results.

Netflix also stated that it has enough headroom for growth in other countries and on other devices like mobile. “We believe there is vast demand for watching great TV and movies and Netflix only satisfies a small portion of that demand. Last quarter, we talked about how our streaming hours in the US (our most mature market) on TV still only represents roughly 10% of total TV usage. We are much smaller and have even more room to grow in other countries and on other devices like mobile.”

On the financial front, the company said that revenue surpassed $4.5 billion in the first quarter Q1 and it recorded the highest quarterly paid net adds in its history (9.6 million, up 16% year over year). It is working its way through a series of price increases in the US, Brazil, Mexico, and parts of Europe. “For 20 years, we’ve had the same strategy: when we please our members, they watch more and we grow more.”

Paid net adds in Q1 were 9.6 million (with 1.74 million in the US and 7.86 million internationally), up 16% year over year, representing a new quarterly record. For Q2’19, we project total paid net adds of 5 million (-8% year over year), with 0.3 million in the US and 4.7 million for the international segment. This would put us at 14.6 million paid net adds for the first half of 2019, up 7% year over year.

“We’re working our way through a series of price increases in the US, Brazil, Mexico, and parts of Europe. The response in the US so far is as we expected and is tracking similarly to what we saw in Canada following our Q4’18 increase, where our gross additions are unaffected, and we see some modest short-term churn effect as members consent to the price change.”

Netflix noted that its global content in the second half of the year includes new seasons of series, ‘Stranger Things’ (July 4th), 13 Reasons Why, Orange is the New Black, The Crown and La Casa de Papel ( aka Money Heist) as well as films like Michael Bay’s ‘Six Underground’ and Martin Scorsese’s ‘The Irishman’ and Netflix expects another year of record annual paid net adds in 2019.

It forecasts an acceleration in both streaming ARPU (+2% vs. -2%) and total revenue growth (26% vs. 22%) in Q2 vs. Q1. Excluding currency, the forecast is for streaming ARPU and total revenue to rise by 7% and 32%, respectively in the second quarter. The full year 2019 operating margin target of 13% is unchanged, which means that it expects operating margin in the second half of the year will be higher than the first half.

Netflix also said that as a result of US tax reform, it simplified its corporate structure.

On the content front, Netflix said that the aim is to have a wide breadth of content that satisfies the diverse tastes of its nearly 150 million paid members and the hundreds of millions of people that it hopes will one day join Netflix. “We continue to see big successes across our programming categories. For Q1’19, in scripted English language TV, we premiered another big hit in ‘Umbrella Academy’, based on the comic book by Gerard Way and Gabriel Bá, which has been watched by 45 million member households in its first four weeks on service.

“Our original films effort built on the momentum from our Q4 blockbuster ‘Bird Box’ with ‘Triple Frontier’, starring Ben Affleck and directed by J.C. Chandor. This action/heist movie has been watched by over 52 million member households in its first four weeks on Netflix. ‘The Highwaymen’ (starring Kevin Costner and Woody Harrelson as two lawmen that bring Bonnie and Clyde to justice) is on track to being watched by over 40 million member households in its first month.”

On the product and partnerships side, Netflix said that it has been expanding bundling initiative and is now distributing Netflix through 10 different operator bundles across the globe. To date, these bundles have had a positive effect on the business, driving incremental acquisition at similar economics to other partnerships where Netflix is offered ȧ la carte.

“Later in Q2, we’ll be running a test to improve our UK member experience by releasing weekly top 10 lists of the most popular content on our UK service across various programming categories. For those who want to watch what others are watching, this may make choosing titles even easier. After a few months, we’ll decide whether to end or expand the test.”


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