Netflix's Global Invasion Continues to Accelerate

WHY THIS MATTERS: Netflix's incredible growth means adjusted forecasts, ISP shifts in strategy and new opinions about its price increases.

Netflix's Worldwide subscriber base growth sped up again in the first quarter of 2018, doing so rapidly enough that a top industry analyst believes the service will reach the 300 million mark about two years earlier than anticipated.

Helped in large part by international subscriber additions, Netflix tacked on 7.41 million streaming subs worldwide in the first quarter, handily topping the 6.35 million it expected to add.

The Q1 subscriber additions, which included 1.96 million from the U.S., extended Netflix's global streaming base past 125 million. It expects to end Q2 2018 with 131.2 million subscribers worldwide.

Those subscriber results were paired with a 40.5% surge in revenue, to $3.7 billion, driven in part by a 25% boost in average paid streaming memberships.

Netflix's rate of subscriber growth, which has continued to climb despite recent price increases to most of its base, has caused some analysts to adjust their forecasts.

Sanford Bernstein media analyst Todd Juenger said he now expects Netflix's milestone state of 300 million subscribers to be reached in the first quarter of 2027, roughly two years ahead of an earlier forecast.

Netflix announced most of its price increases in the fourth quarter of 2017, though many didn't take effect until the first quarter of 2018, Juenger pointed out in a research note.

There was still a chance that the Q4' price increase hadn't yet shown up in churn/net adds, because it didn't actually hit consumers until Q1, he noted. This earnings result lays that concern to rest.

Though international growth of its direct-to-consumer over-the-top products continues to expand, Netflix has been complementing that with integration deals with pay TV operators and broadband service providers in the U.S. and abroad, inclduing Comcast and U.K.-based Sky.

Expect that trend to continue in Netflix's existing markets, as well as in new regions where it launches service, as the company views this as an attractive supplemental channel.

Based on what we've seen with these new bundle models that we referred to with both Comcast and Sky, announcing in the last quarter, we've seen the economics of those if you take in the retention, the acquisition characteristics to be very, very beneficial, Gregory Peters, Netflix's chief product officer, said April 16 on the earnings call.

Partnering Pays Off

Those partner subscribers are becoming a larger part of Netflix's net adds story, Juenger said. This is positive in many ways, he added, noting that those partners give Netflix exposure to millions of consumers who are more resistant to churn.

The major risk, in the long run, is whether these partner deals become such a big part of Netflix's member base that Netflix essentially inherits a problem similar to the cord-cutting problem faced currently by traditional basic cable networks in the U.S., Juenger said. We don't think this should happen, as long as the value of the Netflix service remains so far in excess of its price to consumers.

Comcast plans to introduce a variety of initial offers this month that include a Netflix subscription, and some bundles that feature the OTT service alongside other premium video services have already begun to surface.

According to a consumer in New Jersey entering the Comcast website as a new customer, packages with Netflix have begun to appear for certain double- and triple-play service bundles.

Among them, a Super Triple Play bundle pairs a 1 Gigabit per second (downstream) broadband service, voice, DVR service and a 250-plus TV channel lineup that includes Netflix, HBO, Showtime, Starz, Cinemax and TMC, for $149.99 per month (with a two-year agreement).

WHY THIS MATTERS: Netflix's incredible growth means adjusted forecasts, ISP shifts in strategy and new opinions about its price increases.

Netflix's Worldwide subscriber base growth sped up again in the first quarter of 2018, doing so rapidly enough that a top industry analyst believes the service will reach the 300 million mark about two years earlier than anticipated.Subscribe for full article

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