Netflix’s quarter results were just announced. Though they were expected to lose 2 million subscribers in Q2, Netflix lost nearly 1 million. CEO Reed Hastings says the results were “less bad” than feared. So is the streamer really over the hump?
“Reed Hastings: ‘Less bad’ than feared”
Kim: They had set the bar pretty low by saying they expected to lose 2 million subscribers in this quarter, and they only lost 1 million. So that's “less bad” as Reed Hastings put it.
Wall Street is very mixed in their response to this as to whether they believe that or not. The stock did tick up, though.
Matt: I think the overall feeling was a sigh of relief in the short term that this is not going to be a downward spiral where the stock was just going to keep going down, where Netflix all of a sudden became an acquisition target.
But if I was a rival entertainment company, I would buy a billboard on Sunset Boulevard and put up that quote, “Reed Hastings: ‘Less bad’ than feared.” This is not great.
This is a company that was the darling of Wall Street, and had subscriber gains in the four, five, six million each quarter, and now they are cheering the fact that they didn't lose as much as they thought? And that they may globally gain a million subscribers next quarter? That's not a company that's going to get to 300, 400 million subscribers in the next five-to-seven years as many thought.
What changed?
Kim: They've cut some costs, they say they're holding a mere $17 billion spend on original content. That's financial discipline in the minds of some on Wall Street.
But, they just launched “The Gray Man” from the Russo brothers. Big stars, expensive, and they wanted to create some kind of a movie multiverse with this thing?
They're feasting on the buzz of “Stranger Things.” But that's not a new show. That comes from the previous era with previous players.
[And] they're not going to have their ad-supported tier until next year. Where is the turnaround coming from?
“I think what that means is more movies like ‘The Gray Man,’ which have the potential, at least to generate interest, and not do the volume strategy that just said, ‘Here's the firehose of movies, maybe one or two of them will resonate,’” says Matt Belloni, founding partner of Puck News. Photo courtesy of Netflix.
Is Netflix over the hump?
Matt: I think there are a couple ways they are turning around. If you look on the TV side, the apportionment of the content spent going to international territories has dramatically increased. And we don't see that as much here in the US, but they are spending more in territories where they see potential growth opportunities. And I think that is a pivot.
On the film side, Scott Stuber, the film chief has been very open about how he wants to make fewer movies, and make more impactful and targeted movies. And I think what that means is more movies like ‘The Gray Man,’ which have the potential, at least to generate interest and do a marketing spend around them, [to] generate subscribers and not do the volume strategy that just said, “Here's the firehose of movies, maybe one or two of them will resonate.”
But I think on the content side, they are at least making noises of changes. And I'm hearing from inside Netflix that people are noticing that the priorities are different, and that they're not spending big on those vanity overall deals, and we'll see where the content ends up.
Kim: We will see. It's one thing to say it. It's another thing to do it. And time will tell.