Netflix Flails Amid Q3 Subscriber Results, But Content to the Rescue?

October 16, 2014
By: Tara Seals

Netflix saw great revenue gains for the third quarter of 2014, but Wall Street certainly didn’t like the fact that it missed its subscriber estimates in the latest round of earnings.

Net subscriber additions were lower than expected at 3.02 million, bringing total members globally to 53.1 million. On the home front, Netflix added only about a million new members in the U.S., ending Q3 with 37.22 million members. That’s lower than forecast and lower than the prior year. Internationally, it added two million members, to end the quarter with 15.84 million subscribers—that’s also lower than forecast, but higher than prior year, and it’s a number that’s bound to increase thanks to recent additional launches in Germany, France and other markets in Western Europe.

Profit was up, however, with the company reporting earnings of 96 cents per share, with a revenue of $1.22 billion. Domestic streaming revenue came in at $877 million, which is a 25 percent spike year over year—a result, the company said, of the $2 increase in monthly streaming subscription pricing that went into effect in Q2. International revenue came in at $346 million, growing 89 percent year over year.

The company is forecasting adding another four million members in Q4, ending 2014 with over 57 million global members—and CEO Reed Hastings downplayed the subscriber fluctuations in a letter to shareholders.

“For the prior three quarters, we under-forecasted membership growth. This quarter we over-forecasted membership growth,” Hastings said. “We’ll continue to give you our internal forecast for the current quarter, and it will be high some of the time and low other times.”

He added, “Since our per-member viewing and retention in the U.S. are as strong as ever, we don’t think increased competition from piracy, TV everywhere, Amazon Prime Instant Video, Hulu (News - Alert), etc., is a major factor.”

Nonetheless, Netflix lost 26 percent in after-hours trading on Wednesday, and as of press time remained down by 21 percent.

Hastings did say that he expects Netflix’ ongoing investments in content to boost subscriber numbers going forward. The company for instance recently announced plans to release original film content in addition to TV, starting with a sequel to Ang Lee's Crouching Tiger, Hidden Dragon, which Netflix will make available online and in IMAX theatres.

Chief content officer Ted Sarandos told the MIPCOM 2014 audience this week that Netflix is “accelerating the [streaming film] model by putting our money where our mouth is. We're acting under a movie distribution model that's been in place since the beginning of movies on television in the early ‘70s."

He also talked up the arrangement to develop content with Adam Sandler—the first project there is set for a 2016 release.

"The Adam Sandler movies will go directly on Netflix, we're not going to open them in theatres anywhere," he said. "And it's a big deal because for the last 20 years, Adam Sandler has had a successful movie in theatres every summer. So this is a very innovative step for someone like him who's a real movie star."

Edited by Alisen Downey