Reed Hastings: Streaming Video Still in Growth Phase

Coming off its slowest fiscal quarter in subscriber growth, Netflix co-founder Reed Hastings contends the SVOD pioneer has plenty of runway left to significantly increase subscribers and revenue over the coming years.

While the service lost 430,000 net subs in North America in the second quarter (ended June 30), Hastings, speaking on the July 20 fiscal interview, said streaming video represents just 27% of the U.S. home entertainment market behind leader linear television. Of that streaming percentage, Netflix holds a market-leading 7% share followed by YouTube TV (6%), Hulu (3%), Amazon Prime Video (2%) and Disney+ (2%), according to Nielsen.

To Hastings, those numbers suggest Netflix’s future is still in the early innings, with unlimited potential.

“Does Internet streaming slow down? That’s seems pretty unlikely,” he said. “At least for the next several years, the growth story as a whole is very intact.”

The CEO said that when it comes to increased secular competition from platforms such as Disney+, Amazon Prime Video, HBO Max and Peacock, Netflix is not seeing a negative impact on its domestic Nielsen weekly streaming metrics (which the streamer has dominated since inception), or in foreign markets.

“That gives us comfort,” Hastings said, adding that when streaming video represents 50% to 60% of home entertainment in the United States, there will be “shakeout” among the competition.

The executive believes the global streaming market could tally more than 800 million before reaching saturation. Netflix ended the quarter with almost 210 million.

“We want to be prepared and lead in that,” Hastings said. “But in the next several years, streaming is still in the early stages.”

CFO Spencer Neumann agreed that the streamer’s growth across multiple indices remains “remarkably” steady despite the ongoing “choppiness” brought on by the pandemic. He said the business continues to perform well, with viewer engagement up nearly 20%, subscriber churn down and comparable to the pre-COVID period in 2019.

But we still feel a little bit of that drag in terms of our acquisition growth as we’re kind of working through.

Neumann says the streamer is on track to add 54 million subs over the past two years through the end of the year, which he said translates to 27 million annually — a benchmark comparable to 2018 and 2019.

“We remain on that growth trajectory,” he said, adding that once the market overcomes the pandemic and Netflix moves into its second half-year content slate, smoother waters await.

“We expect to end the year on a much-more normalized growth trajectory,” Neumann said.