Netflix Hits Q1 Subscriber Growth Home Run; Management Downplays Significance

As expected, Netflix benefited spectacularly from global shelter-in-place mandates, adding 15.8 million subscribers worldwide in the first quarter (ended March 31), to end the period with nearly 183 million subs. Netflix added 2.3 million subs in North America, up from 1.88 million a year ago.

The subscription streaming video pioneer had projected subscriber growth of 7 million and a global sub base of 174 million.

In the shareholder letter, Netflix was quick to downplay the subscriber surge, attributing it largely to global fears about the coronavirus spread. Founder/CEO Reed Hastings and CFO Spencer Neumann instead focused on Netflix’s relief efforts taken to help staff and production personnel around the world impacted by job losses and shuttered facilities.

“Like other home entertainment services, we’re seeing temporarily higher viewing and increased membership growth,” Hastings and Neumann wrote. “In our case, this is offset by a sharply stronger U.S. dollar, depressing our international revenue, resulting in revenue-as-forecast.” ​

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The executives said they expect viewing to decline and membership growth to decelerate as home confinement ends, “which we hope is soon.”

“By helping people connect with stories they love, we are able to provide comfort and escape as well as a sense of community during this pandemic,” they wrote. “So our focus has been on maintaining the quality of our service while our employees around the world adapt to working from home.”

Lastly, the executives expressed a “thank you on behalf of all our employees” to the “heroic” doctors, nurses and first responders fighting pandemic on frontlines around the world, including grocery, restaurant and other essential workers “who take risks to make sure our families are fed and taken care of.”

“We are truly inspired and humbled by you,” Hastings and Neumann wrote.

Hastings’ focus on relief efforts underscores his pre-Netflix volunteer commitments with the Peace Corps and as a math teacher in Swaziland, among other goodwill endeavors.

As previously reported, Netflix in March created a ​$100 million fund​ to help with hardship in the industry, including paying production crews for seven weeks while idled, with the goal of providing a bridge until government safety nets kick in.

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The streamer is also donating $30 million to third parties and non-profits, providing emergency relief to out-of-work crew and cast across the broader TV and film industry in countries where it has a large production base. This includes donations of $1 million each to the ​SAG-AFTRA Foundation COVID-19 Disaster Fund​, the Motion Picture and Television Fund​ and the ​Actors Fund Emergency Assistance​ in the U.S., and $1 million between the ​AFC​ and ​Foundation des Artistes​ in Canada.

“These are all well established hardship funds,” Hastings and Neumann wrote.

Other funds Netflix contributed to include £1 million to the ​British Film Institute, €1 million to the ​Italian Film Commission, €1 million to ​Audiens​ in France, R$5 million to the ​Brazilian Institute of Audiovisual Content​, $1 million to the ​Mexican Academy of Film Arts and Sciences, ​€​1 million to Spain’s ​Ministry of Culture and Sport, Accion Cultural and the Film Academy; and ​€​1 million to the Netherlands Film Fund​.

“In total, we have committed to spend $150 million supporting the industry through this crisis,” Hastings and Neumann wrote.

Meanwhile, Netflix expects to add another 7.5 million subs in the current quarter (ending June 30), to finish the half-year mark with more than 190 million subs — up more than 25% year-over-year.

“Given the uncertainty on home confinement timing, this is mostly guesswork,” read the letter. “The actual Q2 numbers could end up well below or well above that, depending on many factors, including when people can go back to their social lives in various countries and how much people take a break from television after the lockdown.”

Netflix said the ongoing shutdown has thus far had a modest impact on new releases involving language dubbing. While admitting to be in the dark about the future as anyone, Netflix said it is spending less cash this year as some content projects are pushed out.

“Our content competitors and suppliers will be impacted about as much as we are, in terms of new titles,” read the letter. “Since we have a large library with thousands of titles for viewing and very strong recommendations, our member satisfaction may be less impacted than our peers’ by a shortage of new content, but it will take time to tell.”

Finally, Netflix generated $64 million in Q1 from its legacy by-mail DVD and Blu-ray Disc rental business — down from $80.6 million in the previous-year period. It did not disclose how many packaged media subscribers it has.

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