In other words, competitors have started eating into Netflix's dominance.
That showed up in the numbers. For the first quarter of 2021, Netflix reported the addition of 4 million new customers, below the 6 million it had forecast. The company expects to add only 1 million new customers for this current quarter ending in June.
Netflix shares plummeted about 10 per cent in after-hours trading Tuesday, after the earnings announcement.
The company doesn't think competitors created a problem.
"We don't believe competitive intensity materially changed in the quarter," Netflix said in its letter to shareholders.
Led by co-chief executives Reed Hastings and Ted Sarandos, Netflix pulled back on productions during the pandemic, which has now rippled into its release schedule. The company didn't have any big returning series in the period.
Netflix also raised prices in October, increasing its standard plan by a dollar to US$14 a month. It added an extra US$2 to its premium tier, which now costs US$18. The company typically increases its fees about every 18 months. It is also trying to clamp down on password sharing, long a common practice.
Last year, in the same period, just as the pandemic was underway, the company added a record 15.7 million subscribers.
As much of the world went into lockdown, people turned to screens to while away the hours. Netflix recorded a jump in new sign-ups, leading to a record year of nearly 37 million additional customers. The company is unlikely to repeat that performance for 2021 as restaurants, stores, theaters and sports stadiums start opening up to full capacity across the country.
But Netflix is an international business. The majority of its revenues now come from overseas, and it has banked its future growth on emerging markets such as India and Latin America. Those regions have had recent surges in coronavirus cases, prompting new lockdowns. Most of the world, including Europe, has not vaccinated its citizens as quickly as the United States.
Netflix is still spending big. It spent US$465 million to buy two sequels to the hit whodunit "Knives Out," a price tag 50 per cent higher than the first film's gross receipts. It's also 10 times what the film cost to produce. Hollywood lit up with chatter. Did Netflix overpay?
The film's director, Rian Johnson, came up with the idea for the film, and he and his producing partner control the rights. The lucrative deal is in keeping with Netflix's expensive courtship of Hollywood creators. It has nine-figure agreements with prolific television producers including Rhimes and Ryan Murphy, as well as actor-producer Adam Sandler. Johnson could join their ranks by creating additional series and films for the company.
Despite Netflix's push into owning its own content, it recently entered into a distribution agreement with Sony Pictures Entertainment, the last major Hollywood studio not tied to any streaming business. Netflix will have rights to some Marvel franchises, including the Sony-controlled "Spider-Man," and several offshoots based on the character.
The company reported profit of US$1.7 billion on revenue of US$7.16 billion for the first quarter. Investors were looking to US$1.3 billion in profit on US$7.1 billion in sales.
In addition, the board of directors approved a US$5 billion stock buyback plan, which should lower the number of available shares in circulation, potentially making them more valuable.
Although competitors are gaining ground, Netflix is in its best financial shape of its history. It hit a milestone at the end of last year, when it said it would no longer look to borrow money to fund its content slate. Another way to look at it: Netflix finally became a truly profitable business after topping 200 million subscribers, each paying an average of US$11 a month.
In other words: Its competitors are still losing lots of money on streaming.
Written by: Edmund Lee
© 2021 THE NEW YORK TIMES
