Three factors why Netflix’s second-quarter revenue report is much more problematic for its rivals than for the play online giant.

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Much like ns climatic step in ns trailer for Murder Mystery—”the most watched Adam Sandler Netflix original film to date,” together Netflix’s Q2 shareholder letter boasts—the globais streaming service’s expansion has crashed.


Netflix had promised investors that it would include 5 million net new paid subscribers yet instead it added apenas um 2.7 million. Yet worse 보다 that, although ns shareholder letter asserts that U.S. Payment subscriber growth foi ~ “essentially flat,” the empresa actually perdido 126,000 subscribers last quarter. That’s the first time in Netflix’s background that it’s falecer subscribers in its biggest market.

The a empresa cites the it perdido more subscribers in regions where it increased prices (like, the United States), yet it pinned ns blame top top its contente that debuted in between April e the fim of June, speak it journey less expansion in novo subscribers than anticipated.

As is always ns case com Netflix, virtually any bad notícia prompts its unbelievable to predict that its, um, residence of Cards is about to collapse, if its many ardent defenders can discover plenty of justifications to sweep it longe as a mere stumble along a service’s route to rude world domination.


I’ll recognize that I have actually vacillated in between these two poles, but today’s miss is in reality extremely nós vamos news para Netflix. Here’s why.

1. If over there was der price revolt, that puts rivals in der bind

Netflix increased prices a partir de $11 to $13 der month on its standard plan in the United States, and it perdido 0.2% that its subscriber base. That’s naquela blow Netflix can absorb, yet it sends naquela signal come every various other current and would-be rival: Your company is walking to need to be much better than Netflix and you have durante pricing flexibility whatsoever.

If i were a WarnerMedia executive planning to preço HBO Max in ~ $17 a month, I’d it is in freaked o fim right now. As it is, somente several million people have signed up for HBO as naquela streaming service at $15 der month. In ~ $17, let’s say, that means WarnerMedia is valuing everything else it’s promising to include to HBO Max—its film catalog, TNT, TBS, Cartoon Network, and so forth—at $2 naquela month. Yikes! In a best instance scenario, warner destroys the legacy cable business together subscribers figure this out and embrace Max as naquela cheaper alternative. Or, consumer balk at the price e force warner to confront the inherent contradiction in its business—that that can’t preço HBO below what the charges cable e satellite operators—and ends up damaging its cable business todos by itself. The leaves setup C: Give a stuff longe to at&t wireless customers and hope castle don’t notice their exorbitant encontro fees.


Disney, com both Hulu and Disney+, is likewise boxed in by price. Most experts have assumed the Disney+ at $6.99 naquela month is an introduce price e that that would climb over time as disney built out a catalog. Anyone quem thinks that people ~ ~ going come spend a same quantity of money they do on cabo on transmissão services is woefully mistaken. Disney could hike cable prices as soon as those boosts were hidden in the cable bill. But now it’ll have to tell the customers directly it wants more money. That’s ns thing about direct-to-consumer: There’s durante middleman come blame.

Ad-supported services have actually it worse: Their suffer is going to pale in comparison come an ad-free Netflix, and it’s solid going come seem precious it versus free, ad-supported transmissão services. Being recorded in a middle that rua is walk to death them to being naquela market afterthought at best or an ext likely, der brief caminho station before a market shakes o fim into premium, ad-free services e free, ad-backed ones.

2.  Subscriber numbers are todos that matters

Netflix has been naquela public a empresa for 17 years. For almost two decades, then, Reed Hastings and company have educated investor that the number that matters an ext than any kind of other is como as many people are paying porque o its business each month.


That means that everyone quem is now entering the game is walking to it is in judged by this metric, the one that Netflix has actually drummed right into Wall street as the apenas um thing that matters.

Think about it this way: In 2012, Facebook fui public, the o primeiro dia social-media sociedade to dá so. The empresa (where hasting served together a prancha member a partir de 2011 until earlier this year) trained Wall street that the vitality of naquela social-media company should be judged through its variety of active users. Hey, would certainly you think it? on facebook had more of those than any of that is rivals. When Twitter and then Snap went public, castle both tried to change investors’ focus to various other metrics—and it has actually never worked.

This is ns trap that Netflix has actually set para its rivals.


No one—not casco or Disney+ or apple or HBO Max—is going to supply 151.6 million global subscribers (or 60 million U.S.). No anytime soon, e maybe never.

3. Netflix is sitting on two aces in a hole

Investors, prefer binge watchers, just want much more Netflix. This is why there have actually been persistent rumors the the empresa is walking to get into gaming e that that is going to market ads. The a empresa makes clear in the shareholder letter that neither of these things is going to happen. As for gaming, Netflix acknowledges three novo initiatives: der Stranger Things mobile game, der game based on its forthcoming concertos Dark Crystal: agir of Resistance, e its partnership com Epic Games, machine of Fortnite. But then it hastens to add, “Like our other mercadoria initiatives, this games estão designed to develop fandom for our titles e don’t signal der push right into gaming as der new business ao Netflix.” It ser estar even more emphatic about a ad business. “When you review speculation that we ~ ~ moving into selling advertising, it is in confident the this is false. We think we will have naquela more an useful business in the grande term through staying out of competing porque o ad revenue and instead entirely focusing ~ above competing ao viewer satisfaction.”

This stance about ads is admirable! Data-driven targeted advertising is an extremely high-margin business, albeit one that is increasingly toxic politically. It is the kind of point that can rather quickly começo to erase $12 exchange rate in debt, let’s say, or fund any number of martinho Scorsese crime epics.


Netflix might pursue these novo lines of service if market conditions mudança or the feels the need come compete against those free play online services or the time consumers spend playing games. Remember tudo de the equipe Steve tasks said comprimidos would never work, or apple wouldn’t importar into the cellphone business? the arguably believed these statements till he didn’t. A same applies here to Netflix’s statements about gaming and advertising.

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Here’s ns thing: having der weapon e not using it can sometimes be even an ext powerful. Netflix having options—from ns strength of having an ext than 150 million subscribers—is not good news for Disney, Warner, e everyone else. Castle haven’t even caught up come Netflix’s 12-year head começar in streaming. If the a empresa changed the game on lock now, by a time they capture up that will practically certainly be too late.


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