Netflix reported revenues on Wednesday evening and the results were disastrous. The company saw its first major loss in US subscribers in the last quarter and only 2.7 million paid customers joined worldwide, almost half of what was predicted. Stocks have fallen with more than 10 percent just after the report came out. It is a terrifying growth slowdown for a service based on subscriber growth and raises new questions about how long the company can justify its release of content.
During a call after the release, Netflix executives emphasized international markets where subscriber growth is still healthy. Almost all of the company's new subscribers came from international markets this quarter, and according to CEO Reed Hastings, there is still enough room to grow there.
"There are about 700 million households paying for TV outside of China – the equivalent of the one hundred million dollars – and that is an established market," Hastings said on Wednesday evening during a call from investors. "Do we have enough content in each of those countries? The internet is suitable for a number of very large customer bases."
Netflix managers also spent a significant part of their conversations talking about India, where the company expects significant growth. It is a largely unsaturated market and one that Netflix has been trying to develop for some time. Netflix is about to launch five new originals for India, some of which may also be marketed in the US and Europe.
"We have seen nice, steady increases and involvement with our Indian viewers that we think we can continue to build," Sarandos said. "The growth in that country is a marathon. We are doing it for the long term."
That international focus is bearing fruit, according to Sarandos. Three specific shows – How to sell drugs online (Germany), The rain (Denmark), and Quicksand (Sweden) – have all found a large audience outside their home region. Each series has collected between 12 and 15 million viewers worldwide, Sarandos said, adding that while "very relevant in the home country and the region travel very, very well", they find a viewing audience everywhere.
"We see real local, regional and globally relevant content from around the world," he added.
At the same time, the company faces a steeper path than ever in the United States. Netflix lost subscribers this quarter for the first time in years, a combination of price increases and a slowdown in content. As the US market becomes oversaturated with streaming services – with WarnerMedia, Disney and Apple launching all streaming services – the only way to ensure growth is outside the United States. Netflix currently has 60 million paying domestic subscribersand Hastings believes they can reach 90 million, but the risk of market saturation is real and raises difficult questions for the content strategy of the company.
"The Netflix subscriber spiral reveals a dangerous decapitation of their growth strategy," said financial analyst Eric Schiffer The edge. "Investors can expect an almost insane level of development spending abroad."
But the company faces a number of issues that may affect their overall growth in the coming years. Netflix loses a number of heavily guarded licensed series, such as friends and The office, for competitors WarnerMedia and NBC Universal respectively. A lack of tempting originals, which ravaged the company's most recent quarter and contributed to a loss of 130,000 subscribers, will continue to grow unless Netflix can boost production. It is part of the business plan – permanent studio sets were purchased for Netflix to produce movies and TV shows faster.
Managers know they are going to replace people's favorite TV shows that they don't own and go to competing services with new shows and movies. That immediate loss of licensed content will be felt more in the United States than in other countries due to agreements with rightholders, and that is a market they know needs to step up to keep subscribers happy.
"We get our members much more attuned to the expectation that we will make their next favorite show," Sarandos said. "Not that we become the place where you can get everything and every time."
Netflix still spends a lot of money on American shows and films, signs one hundred million dollar deals with high-profile showrunners such as Shonda Rhimes and Ryan Murphy. Adam Sandler & # 39; s Murder Mystery was viewed by more than 73 million household accounts worldwide – more than the entire American Netflix base.
Although Hastings and Sarandos would not say how much of their budget is spent on US spending, the company takes large amounts in Hollywood projects. Bright, starring Will Smith costs almost $ 100 million to make. The upcoming Martin Scorsese film, The IrishmanReportedly Netflix costs around $ 140 million. The company was also talking about buying a movie theater in Los Angeles. Netflix does not give up the US, but essentially combines everything around the world for people. Executives are willing to spend an exuberant amount of money securing tentpole features, top series, and video makers in the United States as a way to stay ahead of the competition with back-catalogs of favorite movies and TV shows 39; s from Netflix.
All this ensures an increased focus on international content, even for American users. That's why subscribers in America are starting to see shows from Denmark or Spain promoted on their front page. People will also see more Japanese anime and Indian originals. The investment that Netflix makes in each country will be harder to satisfy because everything is placed in a loop. But Netflix is said to be spend more than $ 15 billion this year content only. The company wants to fight to keep your attention; it's just obvious from their merits that fighting becomes harder than ever.