Netflix reported a horrible second quarter this week. You may have seen some of the numbers or headlines. The company is spinning the quarter as an anomaly, but Q2 2019 could be a sign of things to come.

Netflix predicted it would add 5 million subscribers this past quarter. Instead, the streaming giant added 2.7 million. Remember: That was Netflix’s own guidance, not something analysts had estimated.

Netflix in fact added 2.83 million subscribers internationally. The 2.7 million figure comes from the fact Netflix also lost 130,000 subscribers in the U.S. The last time Netflix lost U.S. subscribers was almost eight years ago, in Q3 2011, when it separated its DVD-by-mail and streaming services. Remember: You have to go back 31 quarters to see another U.S. decrease.

Netflix’s stock was pummeled in after-hours trading on Wednesday. The stock of course dropped like a rock on Thursday. It’s Friday and I’m here to tell you that this was no ordinary drop. Remember: This was a correction, likely due to multiple factors.

Disney is coming

Netflix partially blames its price increase for the poor quarter. And that’s partially true. Here is the company’s explanation, from its earnings release:

Our missed forecast was across all regions, but slightly more so in regions with price increases. We don’t believe competition was a factor since there wasn’t a material change in the competitive landscape during Q2, and competitive intensity and our penetration is varied across regions (while our over-forecast was in every region). Rather, we think Q2’s content slate drove less growth in paid net adds than we anticipated.

The first sentence, I agree with. Price played a role. The second sentence is highly unlikely. Impact from competition doesn’t come all in one quarter. The third sentence ties it all together. Competition, in the streaming space, impacts content, which further impacts consumers.

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The price increase certainly played a role, and it’s good Netflix acknowledges it. But price was just the straw that broke the camel’s back.

Netflix the camel was already carrying subscribers who know about streaming offerings from Amazon, BBC, Hotstar, Hulu, and YouTube. They know that Disney+ and Apple TV+ are coming this fall. True, they may not know that streaming services from NBCUniversal and WarnerMedia are slated for 2020, but they have heard that Netflix is going to lose its popular licensed shows to them. Most notably, those include “The Office” (NBCUniversal) and “Friends” (WarnerMedia).

After adding 2.7 million out of 5 million in Q2 2019, Netflix now predicts it will add 7 million subscribers in Q3 2019. I don’t know what will happen next quarter. But I do know there won’t be another eight-year gap before Netflix sees another U.S. subscriber drop.

ProBeat is a column in which Emil rants about whatever crosses him that week.



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