The second quarter of 2019 was surprisingly tough for Netflix, which lost 126,000 domestic subscribers during its latest fiscal period. In its second quarter 2019 earnings call, Netflix also said it failed to meet growth expectations in all other regions worldwide.
Netflix expected to gain 300,000 U.S. subscribers during the fiscal period. Although paid Netflix memberships grew by 2.7 million worldwide in Q2, that growth was far below the company’s forecast of 5 million net adds. Netflix added 5.5 million paid memberships in Q2 last year.
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Regardless, the company told shareholders that it expects to add 7 million paid members in Q3, more than the 6.1 million added in Q3 last year.
Netflix attributed the middling Q2 growth to a weak slate of content. Although the company missed its membership forecast across all regions, Netflix noted that the numbers were lowest in areas that saw price increases. Netflix increased its standard subscription price from $10.99 to $12.99 during the fiscal period.
The company’s underwhelming Q2 results came after recent announcements that Netflix will lose the rights to the massively popular sitcoms “Friends” and “The Office” in early 2020. “Friends” will find a new home on the upcoming HBO Max streaming service, while “The Office” will be heading to NBC Universal’s still-unnamed streaming platform. Netflix has also lost much of its Disney content in the last few months, including many of the Marvel Cinematic Universe films, which will be on Disney’s upcoming Disney+ streaming service.
Content exclusivity has become the coin of the realm for streaming services as entertainment companies develop their own streaming platforms. Netflix spun the loss of those sitcoms and its Disney content as a move that would free up its budget for more original content. Regardless, the company highly valued those shows and almost certainly sees their departure as a significant loss: Netflix reportedly offered $90 million per year to retain the rights to “The Office,” but was outbid by NBC.
While competition from other streaming services didn’t change much in Q2, the streaming market will become significantly more cutthroat in the coming months with Disney+ AppleTV+, HBO Max, and NBC Universal among those that soon launch services of their own.
Apple is investing significant resources in high-profile partnerships with celebrities and leading Hollywood talent, such as Oprah, Steven Spielberg, Reese Witherspoon, and J.J. Abrams. As for Disney, the impending release of its Disney+ streaming service means new television shows in the ever-popular Marvel and “Star Wars” universes, which are sure to appeal to many prospective subscribers.
Netflix noted the increased competition in its shareholder letter, but did not outline a strategy to stand out from rival streaming services beyond noting that despite persistent rumors to the contrary, Netflix would remain ad-free.
Still, Netflix says it enjoyed a strong start to Q3. Netflix recently released the third season of its acclaimed “Stranger Things” series, which the company said broke viewership records for the platform. Though a fourth “Stranger Things” season has not been officially announced, it’s a safe bet that Netflix will continue investing in the series down the road. Netflix will also release the seventh and final season of hit comedy-drama “Orange is the New Black” on July 26.
Netflix also recently announced a video games based on the “Stranger Things” series and its upcoming “Dark Crystal: Age of Resistance” series. That said, Netflix told shareholders that these video games were designed to promote those shows and do not signal a pivot towards gaming.
Netflix shares dropped around 11 percent in after-hours trading.