×

Netflix U.S. Subs Drop in Q2 After Price Hikes, Company Blames Global Forecast Miss on Content Slate

For the first time in eight years, Netflix lost subscribers in the U.S. — dropping a net 130,000 for the second quarter of 2019 — and added nearly 2 million fewer international customers than expected, sending the stock tumbling.

Paid subscribers grew by 2.7 million, including 2.83 million internationally, almost half that of Netflix’s previous guidance of 5.0 million net adds (300,000 in the U.S. and 4.7 million for the international segment). Netflix had 151.6 million paid streaming subs as of the end of June.

Netflix shares fell more than 12% in after-hours trading. The company said the Q2 subscriber results were the result of a weaker content slate in the quarter, which drove fewer paid net adds than anticipated, and said price hikes also hurt subscriber additions. Netflix last reported a drop in U.S. subscribers in Q3 2011, after it split apart its DVD-by-mail and streaming services.

The company expects to rebound in Q3, projecting 800,000 U.S. net adds and 6.2 million internationally, for 7 million paid memberships overall (up from 6.1 million in Q3 a year ago). “Consumers around the world continue to move from linear television to internet entertainment at a remarkable rate,” the company said in its letter to shareholders.

The Q2 results include the effects of Netflix’s U.S. price increases, where the Standard two-HD stream plan rose from $10.99 to $12.99 per month, a price hike that was completed during the quarter. The company also is rolling out price increases across Europe including in the U.K., Spain, France, Ireland and Germany.

“Our missed forecast was across all regions, but slightly more so in regions with price increases,” the company said in announcing results. Netflix said it didn’t believe competition was a factor for the subscriber miss: “Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.”

Even as it blamed a light content lineup for the botched forecast, Netflix touted viewing figures — again — for a few selectively picked titles that premiered in Q2.

Those included “Dead to Me,” a dramedy series starring Christina Applegate (watched by 30 million households in its first four weeks, according to Netflix’s unverifiable stats) and Ava DuVernay’s limited series “When They See Us” (watched by 25 million households), which was just nominated for 16 Primetime Emmy Awards. It also claimed YA romantic comedy movie “The Perfect Date” starring Noah Centineo was a “global hit” watched by 48 million households in its first four weeks. According to Netflix, the Ali Wong-Randall Park romcom “Always Be My Maybe” was viewed by 32 million households in its first four weeks.

Netflix called out Q3 releases including “Stranger Things” season 3 and the seventh and final season of “Orange Is the New Black” — the two shows that topped a recent survey asking Netflix customers to pick their favorite shows. Also coming to the service in the current quarter are “Ozark” season 3, Jerry Seinfeld’s “Comedians in Cars Getting Coffee,” “The Dark Crystal: Age of Resistance,” as well as comedy specials including those from Aziz Ansari, Whitney Cummings and Katherine Ryan. Original films on tap for later in 2019 include “The Irishman” from Martin Scorsese and action movie “6 Underground,” directed by Michael Bay and starring Ryan Reynolds).

On the Q2 subscriber miss, Netflix also said its net add of 9.6 million streaming subscribers in Q1 was so large, there may have been “more pull-forward effect than we realized. In prior quarters with over-forecasts, we’ve found that the underlying long-term growth was not affected and staying focused on the fundamentals of our business served us well.”

Netflix posted revenue of $4.92 billion, in-line with Wall Street’s $4.93 billion forecast, and earnings of 60 cents per share (topping analyst consensus estimates of EPS 56 cents).

In the year ahead, Netflix will face significant new competition, with Disney Plus and Apple TV Plus slated to debut in the fall and streaming services from WarnerMedia and NBCUniversal on tap for 2020.

With the traditional media giants rolling into its space, Netflix also is set to lose popular licensed shows like “Friends” (to WarnerMedia’s SVOD service) and “The Office” (to NBCU’s). Currently, content from NBCU, Disney/Fox and Warner Bros. accounts for 60%-65% of Netflix’s viewing hours, and over time much of that will be pulled back, according to Wedbush Securities analyst Michael Pachter. “[W]e expect the migration of third-party content to be relatively slow,” he wrote in a note last week. However, “it is unclear whether Netflix can replace it with quantity and quality sufficient to keep its current subscriber base loyal.”

In its letter to shareholders, Netflix acknowledged the loss of licensed content but put an upbeat spin on it — saying that will free up “budget for more original content.” The company claimed that even the most popular titles account for only a low-single-digit percentage of streaming hours.

“From what we’ve seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or 2nd run series from Fox, for example) our members shift over to enjoying our other great content,” Netflix said.

Netflix, citing the coming SVOD launches by Disney, Apple, WarnerMedia, and NBCU, said competition in the sector “is fierce for all companies and great for consumers.” But it also said in the U.S., customers spend only about 10% of their TV-viewing time on Netflix “and less of their mobile screen time, so we have much room for growth.”

Also in the investor letter, Netflix strongly reiterated that it has no plans now or in the future to start selling advertising and said it will launch a lower-cost, mobile-only plan in India in the third quarter.

Pictured above: Netflix’s “Dead to Me,” starring Linda Cardellini and Christina Applegate

Popular on Variety

More Digital

  • Ann Sarnoff Warner Bros

    Ann Sarnoff Formally Takes Reins of Warner Bros. as CEO

    The Ann Sarnoff era at Warner Bros. has begun. Sarnoff formally took the reins as Warner Bros. chair-CEO on Thursday, two months after she was appointed to the post. Sarnoff told employees in a memo that she has been impressed by the company’s track record during the past year amid a period of upheaval for [...]

  • YouTube TV Adds Subscription Options for

    YouTube TV Adds Subscription Options for AMC Networks' Acorn TV, UMC

    Google’s YouTube TV now offers two more add-on channels to subscribers, under an expanded pact with AMC Networks: British TV service Acorn TV and UMC (Urban Movie Channel), which features a selection of black TV and film titles. Acorn TV’s add-on channel is now available via YouTube TV for $6 per month and UMC is [...]

  • homepod-white-shelf

    Apple Said to Prep Cheaper HomePod for 2020

    Apple is getting ready to introduce a cheaper version of its HomePod smart speaker in 2020, Bloomberg reported Thursday. The company is also working on a new version of its AirPod headphones for next year, according to Bloomberg. Apple didn’t immediately respond to a request for comment. The new version of the HomePod is said [...]

  • Eminem’s Publisher Sues Spotify, Claiming Copyright

    Eminem’s Publisher Sues Spotify, Claiming Massive Copyright Infringement

    Eminem’s publishing company Eight Mile Style filed a major copyright infringement lawsuit against Spotify late Thursday, claiming that the streaming giant has no license to host about 250 of Eminem’s songs, while also taking aim at the Music Modernization Act, the federal law enacted last year to improve royalty payments for songwriters. The news was [...]

  • iQIYI headquarters building in Beijing

    China’s iQIYI in Talks for Indonesia Expansion

    Chinese streaming firm iQIYI is in negotiations to expand further into Southeast Asia through a venture with Indonesia’s Media Nusantara Citra. iQIYI announced its first step outside Chinese-majority territories in June, when it revealed a linkup in Malaysia with pay-TV leader Astro. It also operates in Taiwan. In April, the company said that it planned [...]

More From Our Brands

Access exclusive content