Netflix is staying true to its investment in original programming, most recently its ‘Mystery Science Theater 3000‘ revival announcement, at San Diego’s Comic-Con Saturday.
It’s been a volatile week for Netflix, with stock prices dropping 14% and analysts exclaiming the trend can continue to decline as far as 40%, at $50.00 per share.
Netflix CEO Reed Hastings spoke with investors about the Q2 subscriptions. Projections came up short, only adding 160,000 domestic out of the 500,000 and 1.5 million out of the 2.5 million subscribers internationally.
It’s been reported that this isn’t the first time that Netflix has had its back up against the ropes. Bespoke Investment Group reported that there was an earnings reaction drop of 5% following earnings 24 times. The worst drop came in Q3 2014 with a drop of 20%.
Everyone seems to be trying to wrap their heads around the fact that new Netflix subscribers have slowed. There is no one specific reason for this but rather a series of elements attributing to the fact of a lower subscriber count.
“We are growing, but not as fast as we would like or have been. Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business,” CEO Reed Hastings and CFO David Wells shared in their company letter to investors.
One element is that Netflix is raising their monthly subscription fee. Although to some, this may not be as strong a justification to suddenly leave Netflix or prevent new sign ups for the streaming. Apparently, the robust content that Netflix once had available is shrinking by 40%. They once had titles numbering over 9,000+, and have steadily decreased their titles to now include just over 5,000. For a customer, that’s disappointing, especially after binge watching favorite shows and catching up on select movies, customers seem to be running out of options that will keep their watch interest from dwindling.
Why is Netflix dropping titles from their database? It’s certainly not to disappoint customers. As the streaming media giant has proven to grow in popularity, so have the wallets of the companies that want a larger slice of the Netflix licensing pie. When Netflix began producing its own original programming, it probably did not help relations with such companies and due to supply and demand, price increases became apparent, which in turn, caused Netflix to bump up their subscription price slightly, in order to cover licensing costs.
Netflix, then decided to double down on creating more of its own original programming. Netflix has invested over $5 billion dollars for 2016 alone to focus intensely on producing original programming content. The investment will bring in 600 hours of original content this year, including 31 original shows. Such a large investment into producing their own content will help unravel the licensing hold that some of the contracts have with Netflix.
If Netflix is going to continue to grow and expand its brand globally, it needs to continue investing in stellar original programming. Its current track record is doing extremely well. Many of the shows on Netflix constitute for large viewership, critical acclaim and awards.
Strength in other countries won’t happen overnight for Netflix. Out of the 130 new markets they wish to dominate with streaming media, there comes a new set of challenges. Different cultures will prefer content that they can relate and connect to and when you have content that is dominated by English-speaking stories, it can be a turn off, especially to countries where they can get a cheaper streaming service option.
China is another major market that Netflix is trying to dip its toe into and time will show how effectively Netflix can penetrate and grow their brand in that region.
The investment into original programming will also have to take into account the culture ratio inside of key countries where they can get the most ROI and that means catering such content to a specific demographic that will be excited about what Netflix is offering.
There also comes into play the element of growing competition. When you look at the treasure chest of Amazon for instance, you are competing with an e-commerce mega giant, who happens to be swiftly positioning itself into the streaming market quite sufficiently. Amazon has the audience, finances and growing entertainment relationships for licensing expansion, not to mention its own investment of billions into original programming through Amazon Studio.
You also have Hulu, HBO Go and many other companies large and small that are getting into the mix in major ways. Hulu, picked up the same roster of titles from Epix, right after Netflix and Epix decided not to renew their contract. Since the same content from Epix is also available on Amazon, it won’t prove a big hit to Netflix but it does signal to customers that there are other options they may eventually prefer.
When you combine all of these aspects in response to a low subscriber count for the second quarter, you begin to see what Netflix is managing. Subscriber count is crucial because it’s a detector for investors to see that the company is growing and bringing in more revenue, but if the team at Netflix continues to focus on the long-term vision of global expansion by way of original content, then the short-term gains may only be growing pains.
Despite all this, Netflix still reported a second-quarter profit of $40.8 million, or $0.09 per share, which still beat Wall Street consensus EPS estimates of $0.02.
New projections claim that Netflix expects to add 2.30 million subscribers globally and 500 thousand in the United States in the upcoming quarter.
This brings us back full circle to the revival of ‘Mystery Science Theater 3000‘. The show is credited for holding the largest Kickstarter campaign, launched by show creator and original star Joel Hodgson, having raised $5,764,229 in one month.
There is expected to be a total of 14 new episodes of MST3K that will head to the streaming service “in the not-too-distant future.”
Joel Hodgson will be overseeing all aspects of the revival, with comedian Jonah Ray and actress Felicia Day also cast in the series. Writers Dan Harmon and Joel McHale have joined forces as writers with Elliott Kalan.
The show’s original cast, Mary Jo Pehl, Bill Corbett and Kevin Murphy, will also return.
— Netflix US (@netflix) July 24, 2016