Netflix, which recently announced its largest price increase in more than a decade, said Thursday (Jan. 17) that it added 8.8 million memberships in the fourth quarter of 2018 — 1.5 million in the U.S. and 7.3 million internationally.
Those additions came as the streaming content service severs sign-up ties with the Apple App Store — a move that promises to add to Netflix’s coffers while dealing a significant blow to the iPhone maker. Subscribers can download the Netflix app from the app store, but subscriptions signups are directed to their website.
Going into Q4, Netflix had expected to add 7.6 million subscribers. FactSheet had forecast that Netflix would add 1.51 million U.S. subscribers and 6.14 million international subscribers. For the full year 2018, Netflix paid net subscriptions increased 33 percent compared to 2017, reaching 29 million, the company said in its latest financial report. Average paid memberships increased 26 percent year over year.
Time spent consuming Netflix content represents some 10 percent of total time spent watching TV, at least in the U.S., CEO Reed Hastings said Thursday during the company’s post-earnings video interview session with executives. “In other nations, it’s a smaller percentage because we have less penetration, but 10 percent is a great mark for us.”
The content developed and offered by Netflix increasing has global appeal, said Ted Sarandos, Netflix chief content officer, during that video interview. Such content is “tapping into the global zeitgeist,” he said, “and it gives me an idea of the potential scale of the global content business.” He also said original content is the dominating force when it comes to TV and film offerings on Netflix. Hastings added that most of unscripted content on Netflix is also original — further demonstrating the important of original material to the company.
When announcing the price increase, Netflix said it would go toward the costs of producing content.
“Our multi-year plan is to keep significantly growing our content while increasing our revenue faster to expand our operating margins,” Netflix said as part of its financials on Thursday. “We’re targeting a 9 percent operating margin in Q1 2019, which we expect will grow over the course of the year.”
According to some observers, Netflix can raise its price as long as it provides the kinds of entertainment that viewers value. BTIG Media Analyst Rich Greenfield told CNN Business, “If you keep adding more content that people like, then the price point is a moving target.” He did say that a monthly fee of $50 would not serve as a “compelling offer,” but it could possibly be the “right price” if the company had, say, the Major League Baseball and Monday Night Football contracts.
So who is Netflix really competing with in this increasingly crowded field? According to the shareholder letter released Thursday, while Netflix has a “very broad set of competitors, we compete with (and lose to) Fortnite more than HBO.”
For the fourth quarter of 2019, Netflix reported an operating margin of 5.2 percent — down from 7.5 percent from the “prior year due to so many titles launching in the quarter.” Revenue came in at $4.19 billion — up 27.4 percent from the year-ago period but below the Refinitiv consensus of $4.21 billion. For Q1 2019, Netflix expects revenue of nearly $4.5 billion.
Company executives did not discuss the app store situation. As PYMNTS has reported, Netflix, along with Spotify, are skirting the app stores and their fees — a move that analysts estimate could cost Apple $287 million in lost fees from Netflix.