Los Angeles: From Germany to Brazil, Netflix Inc stormed ahead in its drive to create a global television network, scoring the video-streaming provider’s best third quarter on record and sending the shares to a new high.
Shows such as thriller ‘Ozark’, starring Jason Bateman, ‘American Vandal’, a spoof of true crime shows, and a Jerry Seinfeld stand-up special helped lure 4.45 million customers abroad and 850,000 in the US, both ahead of estimates. They came at a cost. The company is paying $6 billion (Dh22 billion) for programming in 2017 and said Monday it’ll increase that by as much as a third next year.
The tricky part for Netflix is balancing its push for subscriber growth with the need to cover its soaring programming budget. This month, Netflix raised prices by $1 a month, or 10 per cent, for its most popular plan in the US and UK, funds that will help defray soaring costs. In the past, price increases have led to more customer turnover. Growth slowed for just that reason in 2016.
With prices rising, the Los Gatos, California-based company expects to sign 5.05 million new customers outside the US in the current fourth quarter, above the 4.66 million average of analysts’ projections. Domestically, the company looks to come up light, predicting 1.25 million new subscribers, compared with analysts’ projections of 1.63 million.
Netflix rose as much as 4.1 per cent to $211 in extended trading after the announcement before easing to $205.20. The stock gained 1.6 per cent to $202.68 at the close in New York and is up 64 per cent this year.
The company’s ever-growing budget for movies and TV shows worries competitors who are under pressure to up their own programming outlays while still increasing profit. Investors have allowed Netflix to borrow and burn through cash to fund its growth, while punishing media stocks such as CBS Corp and Walt Disney Co as they’ve lost viewers or advertisers.
Those companies are now creating their own online services, and some, such as Disney, are pulling programming off Netflix. In response, Netflix is stepping up spending on original shows, which will account for more than 25 per cent of the company’s programming budget in 2017 and continue to expand. In all, the company’s 2018 programming budget will be as much as $1 billion larger than previously forecast.
“Investors often ask us about continued access to content from diversified media companies,” the company wrote in a letter to shareholders. “While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear.”
During the quarter, the company signed a production deal with Shonda Rhimes, creator of hit shows including ‘Grey’s Anatomy’, and made its first-ever M&A deal for Millarworld, the home of comic book writer Mark Millar.
International shows
Netflix has also boosted its investment in original programming in other languages to charm overseas who may not be interested in a New York stand-up comedian like Seinfeld, or ‘Ozark’, a crime drama set in the US Midwest. The company just released its first Italian original series, ‘Suburra’, and will have programmes in Japanese and Germany later this year.
Third-quarter net income more than doubled to $130 million, or 29 cents a share, the company said on its website. Revenue grew 30 per cent to $2.99 billion, beating estimates. Total streaming subscribers rose to 109.3 million.
Netflix shares rose on October 5, when the company announced the latest price increase, suggesting investors fear little damage this time around. Customers will be willing to pay more for a subscription because Netflix is spending more, the company has said.
