Netflix Surprises Itself With Gangbusters Membership Growth

Netflix generated US$8.3 billion in global streaming revenue in 2016, with 35 percent year-over-year growth, it reported Wednesday. The company ended last year with 93.8 million members, including 19 million net additions — up from 17.4 million new subscribers in 2015.

Netflix’s global revenue for the fourth quarter of 2016 grew by 41 percent year-over-year to $2.4 billion, and 7.05 million net new members joined during that time period. The U.S. accounted for 1.93 million new subscribers, while the rest, 5.12 million, came from international markets.

The growth greatly exceeded Netflix’s own forecast. It had expected to add 5.20 million new members worldwide. Its growth increased sharply from 2015, when it added 5.59 million subscribers, and the last quarter was the largest quarter of membership growth in the company’s history.

Netflix credited the stellar growth to strong acquisition trends in both its U.S. and international segments.

The final quarter of 2016 also marked the 10-year anniversary of Netflix’s launch of its streaming service, and the beginning of its pivot from DVD-by-mail rentals.

Netflix stock reached at an all-time high of $143.85 on Wednesday, and was trading at $139.23 mid-day Friday.

Crowning Achievement

Original content most certainly played a factor in Netflix’s growth — driven by diverse programming that included the critically acclaimed The Crown — which was well received throughout the service’s global markets — and Guillermo Del Toro’s Trollhunters, which has become one of the its most-watched original kids programs.

Netflix also has been debuting theatrical movies before they make their way to premium cable services in some markets.

“The Disney deal they have in place meant that they have Captain America: Civil War and Zootopia in a handful of countries, and this is the only way to see those movies,” explained Dan Cryan, senior director for digital content at IHS Markit.

“The exclusive content — whether original or licensed — is very high profile, and they can market it globally,” he told the E-Commerce Times.

The company has seen a year-upon-year buildup of its library of content, which makes it both easier to attract new subscribers and to keep the existing ones.

“You can’t join for a month and binge watch everything in that time,” said Colin Dixon, principal analyst at nScreenMedia.

“The fact is that Netflix has an extensive library and that is the only place to watch those shows,” he told the E-Commerce Times. “The importance of this content can’t be overstated — as noted by Google’s findings that of the top 10 shows that were searched for, five of those were Netflix shows. That tells you that they don’t have to spend a lot of money to market those shows.”

The International Market

Much of Netflix’s recent growth has been in international markets, and it has been quick to ensure that content is tailored to those audiences.

“This is very much an international growth story right now for Netflix,” observed IHS Markit’s Cryan.

“However, it has to be remembered that Netflix UK doesn’t have the same depth of Netflix U.S., and that Netflix Brazil isn’t exactly the same as Netflix UK,” he pointed out.

“There is a lot of different content, and the quality of the service varies greatly, but the role of the original content in the company’s portfolio is now more important internationally,” Cryan emphasized.

Where “Netflix sees higher interest, they create a local version and invest in local content,” noted nScreenMedia’s Dixon. “For drama and general entertainment in many markets, they are an essential service.”

Global Concerns

Netflix could find it difficult to maintain its high growth rate as its reaches market saturation. The cost of the service is one dampening factor, as it could make the service out of reach for many in some developing markets.

“Netflix has adopted a one-size fits all solution to pricing — so in some markets, due to economic conditions, it is unaffordable,” said Cryan.

“This is true [in] Central and South America, as well as Africa and Asia,” he added.

“South East Asia is going to be a challenge,” Dixon noted.

“There is already competition with other video services, so even as the markets are strong in North America and Western Europe, as well as the headway they are making in Latin America, the question is how they can succeed in Asia,” he wondered.

Netflix will have to face competition from rivals such as Amazon and Hulu, not to mention the vast availability of content on basic and premium cable.

However, “they will the company that drives that fact that it is hard to keep up with original content,” Cryan pointed out.

“They have a global scale, global reach, and they understand that content is the main drive to add those subscribers,” he added. “While HBO or Amazon can keep up in the international markets with original programming, the other providers don’t have as clear of an international strategy for growing their business.”