Netflix stocks were pummelled due to falling operating profits. But, says CEO Reed Hastings, it's a vibrant time for internet TV.
Streaming video giant Netflix reported third quarter revenue of US$1.74bn. However, share trading slipped 10pc overnight due to the company reporting operating profits of US$74m, down from US$110m a year ago.
During the third quarter, Netflix reported that it added 3.6m streaming subscribers worldwide but admitted this was fewer than expected.
Globally, Netflix reported having 69.17m streaming subscribers worldwide. Much of its growth came from outside the US, with 2.74m of its new subscribers being outside the US while it added just 880,000 in the US.
The company launched successfully in Japan and next week will launch in Spain, Italy and Portugal. In early 2016 Netflix will expand to South Korea, Hong Kong, Taiwan and Singapore.
CEO Reed Hastings said the poor performance in the US was due to higher-than-expected involuntary churn (inability to collect) of subscriptions due to the ongoing move to chip-based credit and debit cards.
However, despite the dip in operating profits, Hastings said that Netflix will break even as a company in 2016 and will deliver material profits thereafter.
Meeting consumers’ desires
Hastings said that Netflix will power ahead with its original series strategy, the most recent addition being Narcos, as well as its own movies, including Beasts of No Nation (an early Oscar hopeful).
During the year, Netflix garnered 34 Emmy nominations for 11 of its original series.
Hastings said a sea change is underway in how people access video content. “It is clear that internet TV is becoming increasingly mainstream and traditional media companies are adjusting to the shift from linear to on-demand viewing.
“It is a great time to be a creator of content because studios make content to sell content (not to withhold it) and there are new bidders for their product. Some studios will choose to license content to SVOD services like Hulu, Amazon Prime Instant Video and Netflix. Others may not. We have a lot of content to select from,” Hastings said.
He described the competitive landscape as vibrant.
“As we have written in our Long-Term View, linear networks that embrace on-demand and internet delivery as we have, will become more valuable and will experience renewed growth (like HBO Now), while those that do not will lose relevancy.
“The secular shift to on-demand consumption is best described as ‘consumers evolving vs old habits’ rather than ‘Netflix vs traditional media’. We’re all racing to fulfill consumer desires,” Hastings said.
Reed Hastings image by Markus Henkel via Flickr/Creative Commons
