Netflix CEO admits Disney+ hurt it in the U.S.
Netflix on Tuesday announced its fourth-quarter earnings for 2019 and the streaming video company reported the addition of 420,000 net new subscribers in the U.S. during the period. But before you use that stat as proof that the November launch of Disney+ did not effect Netflix during the fourth quarter, guess again. The company expected that it would report 600,000 new subscribers in the states for the period. The 180,000 subscriber shortfall might have been related to the strong start that Disney+ got off to, with 10 million subscribers signed up in the first 24 hours.
According to The New York Times, Netflix CEO Reed Hastings admitted after the earnings announcement that Disney+ has "great" content and said that the rival streamer's strong lineup "takes away a little from us." While Netflix often falls short of its estimates (it happens half the time, says the Times), Netflix stated that during this past quarter it was impacted by the seven weeks that Disney+ was up and running during the fourth quarter. In the states, Netflix has 61 million subscribers and expects that figure to keep rising until it hits 90 million.
Netflix doesn't see Disney+ as a long term threat
Netflix added 8.4 million net new subscribers globally from October through December and set company records for the number of subscribers it picked up in Latin America, Asia and Europe during the period. On a quarterly basis, Netflix saw its global subscriber list rise 5.5% bringing the total to 167.1 million customers.
Disney+ might have cost Netflix some subscribers in the U.S. during the fourth quarter of 2019
Netflix will also have some more competition coming starting in the second quarter of this year when NBCUniversal's Peacock streamer launches. The latter's inventory of content will include extremely popular fare including The Office. NBC/Universal reportedly paid $500 million for a five-year exclusive run for the sitcom on Peacock starting in 2021. The service will have two ad-supported tiers that will be free to Comcast and Cox subscribers although anyone can pay $4.99 a month for the Premium service. Comcast and Cox subscribers can also pay a monthly fee for ad-free streaming.
Hastings doesn't expect that Disney+ will negatively impact Netflix in the long term. "Most of their growth in the future is coming out of linear TV," the executive said. And frankly, the same might turn out to be true for Peacock.
During the fourth quarter, Netflix reported net income of $570 million or $1.30 per share. That compares to net of $134 million or 30 cents per share during 2018's fourth quarter. But last year's quarter includes a $438 million tax benefit. Revenue rose 30% from the $4.2 billion recorded during 2018's Q4 to $5.7 billion in 2019. The company announced that The Witcher was viewed by 76 million member households. But Netflix has changed the definition of a view to mean that a subscriber "chose to watch and did watch for at least 2 minutes — long enough to indicate the choice was intentional." Previously, a viewer had to watch 70% or more of an episode or film to qualify as a view. As a result, Netflix's future view counts will be hiked by 35%. For example, the number of views credited to Our Planet went from 33 million under the old definition to 45 million using the new definition.
For the current quarter, Netflix estimates that it will add 7 million net new subscribers globally vs the 9.6 million it added during last year's first quarter. Netflix expects to see elevated churn levels in the U.S. from January through March. Once again alluding to Disney+, the company's Chief Financial Officer Spencer Neumann said that Netflix has been experiencing "some elevated churn from pricing and competition."
Investors are not happy with the report. On NASDAQ, Netflix (NFLX) shares are down 1.8% and are trading at $331.94.