- IHS forecasts for Netflix’s International territories have been slightly reduced to 38m for 2016 and 75.7m for 2020, a reduction of around 1m for the 5 year outlook.
- For the US, full year 2016 forecasts have been adjusted to 48.3m subscribers.
- Q1-2 subscriber growth was always going to be bad as many ‘Grandfather’ customers are faced with price hikes after enjoying many years of cheaper SVoD.
- Since the grandfather deals have ended, Netflix will have experienced an increase in ARPUs and a revenue growth which outstrips subscriber growth.
- International markets are more competitive, especially in important countries such as the UK, where Amazon and Now TV offers are increasingly well targeted to lower end consumers.
- Netflix has pulled back from investment into international content, even in larger countries, stalling growth.
- As the majority of churned customers are resultant of grandfather deals, IHS expects Netflix to return to stronger growth in the near future.
IHS forecasts for Netflix’s International territories have been slightly reduced to 38m for 2016 and 75.7m for 2020, a reduction of around 1m for the 5 year outlook. For the US 2016 forecasts have been adjusted to 48.3m subscribers.
Quarters 1 and 4 have normally been when Netflix acquire the bulk of their subscribers while Q2 is normally much weaker. Q2 2015 for example added a net 2.4m subscribers internationally meaning that the current drop off is not so alarming in context. In addition, ‘grandfather’ pricing deals, came to an end in international markets, dramatically increasing churn of long term subscribers to the service. It’s important to note that much of the market’s reactions stem from results being lower that Netflix’s usually conservative guidance.
Netflix guidance was already lower than usual for Q2 and although executives were quick to state that gross additions were strong, consumers were clearly more price sensitive than anticipated. Netflix still grew organically while increasing prices which for many other companies, would be lauded as an achievement.
In some international territories IHS expects household penetration to reach 50% as seen in the US. However, appetites for original English language products varies greatly from country to country and international markets should not be viewed as a homogenous mass. Regions such as the Nordics are happy to view content in English and there is some evidence to suggest it is also used as a learning tool. Other countries such as Germany and France have a strong tradition of locally produced, local language content and the performance of Netflix in these markets reflects this.
IHS strongly believes that although Netflix has committed to the production of some local language content, in smaller markets the economic arguments these productions do not add up, as these cannot be scaled to Netflix’s entire subscriber base. As such Netflix will focus the majority of its local language production into major world languages; Spanish, Portuguese and Japanese. Netflix are unlikely to significantly invest in local production in most countries and as a result will not enjoy the runaway success seen in many larger markets.