×
You will be redirected back to your article in seconds

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

  • tivo logo

    Tivo Plans to Launch Android TV Dongle, Tivo+ Curation App

    DVR maker Tivo is getting ready to release a new device that may not record television at all: The company plans to launch a $50 Roku-like TV dongle early next year, its new CEO Dave Shull revealed in a conversation with CNN this week. The new device will be powered by Google’s Android TV platform, [...]

  • Still from "Andhadhun"

    Microsoft Streaming Deal Lifts Shares in India’s Eros

    Shares of leading Bollywood film distributor Eros International soared by 38% on Thursday following news of the company’s link up with Microsoft to develop a new generation of video streaming platform. The multinational company said that its Eros Now video operation would work with Microsoft Azure to develop its technology in three ways. They seek [...]

  • Comcast X1 DAZN

    Comcast Adds DAZN Sports-Streaming Service to Xfinity Flex, Sets Launch on X1

    DAZN, the digital sports service headed by ex-ESPN boss John Skipper, is now available to Comcast broadband customers on Xfinity Flex and will be available on Xfinity X1 this fall. It’s the first distribution deal for DAZN with a major U.S. provider since it debuted the combat-sports-oriented service in the States a year ago. In [...]

  • YouTube logo

    YouTube Raises Bar for Channel Verification, Stripping Some Creators of Verified Status

    YouTube is making it harder for channels to receive a verification badge indicating their authenticity — and the program’s new requirements mean that some channels won’t be eligible for verification. Like other internet platforms, YouTube indicates to viewers that specific channels are officially run by the creator, artist, celebrity or company they represent with an [...]

  • BuzzFeed - Katie Sitter

    BuzzFeed Taps Activision Blizzard's Katie Sitter as Head of HR (EXCLUSIVE)

    BuzzFeed hired Katie Sitter, most recently an HR exec at Activision Blizzard, as senior VP of people. Sitter, who starts at the company Sept. 30, will lead the BuzzFeed HR organization and oversee strategic initiatives related to organizational planning, talent acquisition, learning and development, performance management, compensation and benefits, labor relations, and diversity, equity, and [...]

  • Kano

    Kano Tipped to Launch ‘Star Wars,’ ‘Frozen’ Coding Kits

    Educational consumer electronics startup Kano is getting ready to release “Star Wars” and “Frozen” coding kits, according to regulatory filings. Recent FCC filings made by the company reveal plans to release a product called “The Force Coding Kit” as well as one called “The Disney Frozen Coding Kit.” Kano representatives didn’t respond to multiple requests [...]

More From Our Brands

Access exclusive content