Netflix now has 83 million subscribers and according to Market Watch, the streaming giant added just 1.68 million new subscribers, compared with the 2.50 million it expected to add going into the quarter. That breaks down to 160,000 new subscribers in the U.S. and 1.52 million overseas. Churn, due to increases in Netflix’s pricing model, or rather the media coverage surrounding it, was the main driver for lower net adds, according to Netflix. This has put some pressure on the company’s shares primarily due to projections from analysts who came out with a number of expectations. This comes as Netflix which is still the world’s largest internet service subscription service for TV says it expects the figure to greatly improve in the next quarter. The company says it expects to add 300,000 subscribers to the existing 25 million in the U.S. alone and another 2 million internationally in the third quarter.
Netflix reported $2.11 billion in revenue and $0.09 earnings per share for the quarter while pundits had expected the company to report about $2.11 billion in revenue and $0.03 earnings per share.
Besides a hike in prices which analysts blame for the miss in revenue expectations, other international factors could be responsible. Well last week I posted that while PC shipments may be recovering in the US, the same cannot be said of other countries primarily due to economic reasons. The American dollar is now very strong against major currencies and this has further put pressure on the way people buy these services. It was in January this year that Netflix revealed that it was now in a couple of African nations and since then growth has been slow because of a number of factors like awareness but chief among them is the economic concern and if you say economic value, you may not be entirely wrong. It is common to see pirated copies of many of the shows on Netflix on the streets and this has been an issue for well over three decades especially in Nigeria. According to a 2014 report by Nigerian Copyright Commission, piracy as a global cankerworm affects both developed and developing countries of the world. It remains a challenge to law enforcement agencies and the society at large. It was stated that Nigeria is ranked among countries where piracy is prevalent, it was 82% in 2007, 83% in 2008, 83% in 2009, 82% in 2011 and still 83 in 2012. It’s the same challenge when you go across the continent and so this could eventually take its toll on the Netflix business in the African market because someone with a lower purchasing power against the dollar would rather prefer alternatives. A good example is one in the my January article in which I said it would cost an average user from $8/2,200 Naira/1,100 KES monthly to access the basic service and since then that figure now stands at 2,900 Naira for Nigerian users.
There is also internet access service which keeps rising again because many of the service providers leverage on the infrastructure of their counterparts in Europe and America and since they are billed in other currencies, fluctuation in currency abroad means the same locally and this eventually affects the rate at which people use internet based services like Netflix.
The last obvious one could be rival startups like iROKOtv in Nigeria, MTN’s VU, Nasper’s Showmax among others. All of these services have a considerable user base size and show more streamlined content which man in the middle class who can afford these kinds of services prefer.
Netflix says the figures are expected to change in the next quarter and while the local rivals have been in their respective markets longer than Netflix, Netflix has a deeper pocket which is something that has helped companies like Uber dominate in markets where they operate.