Netflix targets new markets, shares fall

In a letter to shareholders, Netflix reveals it has garnered three million international subscribers in total over the six quarters since it launched overseas, with international now representing 12 per cent of total subs and 10 per cent of paid subs.

It says the largest driver of growth in international members in Q1 was the launch of the service in the UK and Ireland at the beginning of January. From the start, we achieved the highest net additions we’ve ever seen in the first 90 days of an international market launch.

“While the UK is a very competitive market, we have found that the existence of competition can be beneficial for driving interest and demand in our service. The existence of other over-the-top (OTT) streaming and on-demand services creates a high level of product understanding and acceptance among consumers and that, in turn, increases their willingness to try Netflix.

In January, we launched with an impressive and diverse base of movies and TV shows, and as our membership continues to grow, we’ll be able to add further to the content library. Lately, we’ve offered members new movies from our existing deals, including Pay TV 1 and 2 titles like “Insidious”, “Horrid Henry: The Movie”, and “Angels & Demons”, as well as iconic catalog titles, such as, “Pulp Fiction”, “The Godfather”, and “Top Gun”.

In the coming months, Netflix will be the Pay TV 1 UK home of “21 Jump Street” and “The Hobbit” from MGM, “The Woman in Black” from Momentum and the recent monster hit “Hunger Games” from Lionsgate. Collectively, our upcoming offerings account for 20 per cent of UK box office year to date, compared to our competitor LOVEFiLM, whose deals we estimate account for around 6 per cent.

Our TV offering is also strong, with previous seasons of current shows from the major US networks and three key local channels. We are particularly excited to be the UK and Ireland TV premiere destination for shows like, “Breaking Bad” and “It’s Always Sunny in Philadelphia”.

From our experience to date, we continue to believe our biggest competitors will be Sky Movies and Sky Atlantic (and potentially Sky’s yet-to-be-launched Now TV streaming service), as well as LOVEFiLM. Without details on consumer pricing or content selection, it remains unclear whether Sky’s Now TV will be a meaningful competitor. Ultimately, we believe we are well positioned to succeed in the UK and Ireland based on our content selection as well as our superior streaming technology.

If the UK Competition Commission eventually forces Sky Movies to not control the Pay TV 1 output from all six major studios, that then may provide an opportunity for Netflix to bid earlier for major studio deals than otherwise would have been the case. It is premature to know how it will play out.”

Read the whole letter

Netflix shares fell in after market trading as analysts cast doubt on the company’s optimism that the current subscriber growth curve will be maintained. With 1.7m US subscribers added in the first quarter and about 600,000 forecast for the second, analysts expressed concerns that
the company could deliver 4.5m more
in the second half of the year.

Revenue for the three months to March 31 was $870m compared with
$718.6m in the same period in 2011. Losses were $4.6m, compared with a profit
last time of $60.2m.

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