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CandW discuss Netflix’ Q4 subscriber growth challenges

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Netflix Q3 2019 results reversed Q2’s poor performance. Things could get bumpy again in Q4. We discuss why Netflix has slashed its Q4 sub growth forecast for the U.S. We also look at what Netflix is doing to defend itself in the tumultuous quarters to come.

Chapter 1: The Q3 2019 results (1:40)

Netflix returned to modest subscriber growth in the U.S. and robust expansion in the rest of the world. The streaming giant added 520,000 paying U.S. customers in Q3 2019, up from a loss of 130,000 last quarter. Internationally, the company gained 6.3 million new paying customers, more than doubling its Q2 gains.

However, the growth trajectory of the company, both at home and abroad, seems to be slowing. In the U.S., Q3 2018 saw year-over-year (YoY) growth of 11%. This year, it has slowed to 6%. Similarly, in international markets, Netflix subscriber growth in Q3 2018 was 43%, and in the quarter just ended growth slowed to 33%.

The heyday of strong U.S. growth appears to be over. It looks like international will lead the company into the next decade.

Chapter 2: The gathering storm in the U.S. market for Netflix (7:20)

With Disney+ arriving in a matter of weeks, all eyes will be on Netflix in Q4 and Q1 next year. Their forecast suggests confidence in the international markets and caution in the U.S.

Chapter 3: The impact of Disney+ on Netflix’ business (9:30)

We review the known rollout plans for Disney+. It looks like the U.S. will be the biggest market in which the service will be available when it releases on November 12th. Disney is unclear on when it will launch in other regions, a side-effect perhaps of having to navigate a complex web of regional content licenses.

I think that the Disney+ release won’t impact existing subscribers much but will impact customer acquisitions. Will makes the point that the company’s elevated churn rate comes from the price increases last quarter. It could be that the Disney+ launch will keep the churn rate elevated in Q4 and beyond.

Chapter 4: How Netflix plans to weather the storm (16:30)

Netflix seems to be ganging up many releases for the Q4 holiday season. It also continues to spend money at a furious pace on new content to guarantee its future business.

Will makes the point that the situation for Netflix is very volatile. Even a small perturbation in performance can have a significant impact on the performance in any given quarter.

Chapter 5: Will show release models have an impact? (20:20)

Disney says it will release new shows under the old TV model, one per week. Netflix has no intention of doing this. Will the Disney approach ultimately hurt it, because people are used to the Netflix model of dropping all the episodes at once? What do you think?

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