Netflix broke two barriers in its stellar Q2 2017 results: the company crossed the 100 million subscriber barrier, and International subscribers now exceed domestic. The company will keep the peddle-to-the-metal on growth but doesn’t plan on using SVOD aggregation as a tool to keep up the pace.
The Q2 2017 results
Netflix added just over a million US subscribers and 4.1 million international customers in Q2 2017. This is a remarkable achievement in a quarter that is typically slow for the company. In the same quarter in 2016, the company added just 200,000 US subscribers and 1.5 million international customers. This performance was well ahead of the company’s own guidance for the quarter.
This quarter marks two landmark achievements for the company. For the first time, International streaming customers outnumber domestic subscribers. Netflix finished the quarter with 51.9 million U.S. subscribers and 52 million outside the U.S. The company also broke the 100 million streaming customer barrier for the first time, finishing Q2 with a grand total of 104 million.
Understandably, Netflix remains keenly focused on foreign markets when it comes to original content creation. However, there is a schizophrenic ring to the approach the company is taking. Ted Sarandos, Netflix’ Chief Content Officer, talked about how creating local content can be an excellent way of driving global viewing:
“We make a fantastic movie for Korea <Okja,> but it’s an even bigger story that the movie is getting watched by millions around the world.”
He later admitted that approach doesn’t always work, particularly in Asian markets.
“We have to get better and better at matching those tastes <Asian> and those tastes are not as easily aligned with Western tastes.”
Clearly, the company is searching for a balance between creating local content with a global audience, and local content with a strong local appeal. Reed Hastings, Netflix CEO, said the company still had a lot to learn in Asia. None more so than in China, where the company has decided not to release Netflix. Rather, it is looking to partner with Chinese companies for the distribution of its original shows.
Growth with its own original content remains the focus
Mr. Hastings continues to focus on growth, rather than profits, as the chief motivator for the company. Though he said the company is now streaming 1 billion hours of content a week (that equates to roughly an hour-and-a-quarter per day per subscriber,) he feels the company is still lagging other video providers.
“We’re such a small player in our viewing compared to linear TV, compared to YouTube. We’ve got a long way to go to have more content to please more people.”
Mr. Hasting was asked about the threat that Amazon posed to Netflix, particularly in markets like Germany where Amazon has a substantial lead over Netflix. As usual, he didn’t accept that Netflix and Amazon were necessarily competitors. He feels there is room for both companies.
There is one area in online video that Amazon is enjoying success where Netflix doesn’t play. Mr. Hastings was asked if the company planned to aggregate other SVOD services, as Amazon is doing successfully with its Channels program. Netflix has the network infrastructure to do this, with its Open Connect CDN. It also has unrivaled availability of its client, which is on just about every connected device in existence. Despite these assets, Mr. Hastings was short and to the point in dismissing the idea: “It’s not something that is right for us.”
Why it matters
Netflix Q2 shows the company’s formula of International focus and original content creating is continuing to deliver great results.
Expect to see more of the same through 2017.
Don’t expect to see Netflix begin to aggregate other SVOD services, as Amazon does with its Channels program.