Netflix is taking over the globe

Netflix is definitely grateful for these kids this quarter.
Netflix is definitely grateful for these kids this quarter.
Image: Reuters/Lucy Nicholson
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After much concern over Netflix’s waning subscriber growth, the streaming-video giant got back on track during the third quarter, crushing its own subscriber forecasts.

Peak TV, it seems, has not yet peaked.

Netflix added 370,000 subscribers in the US during the third quarter, against its own forecast of 300,000, the company said in a letter to shareholders (pdf). It added 3.2 million international subscribers, compared to a forecast of 2 million, bringing its overall streaming subscriber total to nearly 87 million.


The stock jumped as much as 20% during after-hours trading on Monday (Oct. 17).

The company said excitement around Netflix originals, including Stranger Things, Narcos, and Marvel’s Luke Cage, which had premieres during the quarter, boosted subscriber additions.

Much of Netflix’s subscriber woes during the previous quarter were due to price hikes for longtime members in the US that kicked in during the period, and spooked subscribers. The slowdown sparked fears that the company, and its competitors, could not continue spending as lavishly as they have on content, thus signaling the end of the “golden age of television.” But the effects of the increase appear to have waned last quarter.

Prior to the earnings release, Pivotal Research analyst Brian Wieser, said in a research note that consumers have shown a willingness to continue paying more for premium content. “To justify this consumer spending, it seems likely that an ‘arms race’ in premium programming continues with dozens of networks investing in hundreds of original series on an ongoing basis,” Wieser wrote.

It looks like Netflix will have to continue spending lavishly on content, at least for the time being, to keep its hold on members in the US. The same is true abroad, where Netflix is expanding aggressively and investing in local content.

Netflix has said it’s moving toward a balance of 50% exclusive, original content and half licensed content.

That, of course, will be expensive. Cowen and Company said in a recent research report that it expects original Netflix’s content to comprise half of Netflix’s total content expense over time, compared to 15% now. The company said in its earnings report that it expects to spend $6 billion on content next year.

To compensate, the streaming company is getting more efficient at producing and licensing content, as The Hollywood Reporter pointed out, by mixing big-budget TV shows with medium- and low-budget projects.

BTIG Research analyst Rich Greenfield has also questioned (login required) whether Netflix would produce all its original content internally, or whether some of it will be produced by third-parties to cut costs.

Netflix does, however, appear to be hitting a wall in the US market, and some analysts argue that most people who would subscribe to Netflix already have. While Netflix beat analyst estimates for US subscriber additions during the quarter, they were down more than 50% from the same period in 2015, when it added 880,000 US subscribers.

Netflix’s revenue reached a quarterly record of $2.29 billion, compared to $1.7 billion a year earlier.