|17 July, 2019

Netflix runs into an age-old Hollywood problem

The firm led by Reed Hastings loves setting targets that it will then, if anything, overshoot. It’s rare for Netflix to miss

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. REUTERS/Lucy Nicholson

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. REUTERS/Lucy Nicholson

NEW YORK  - Netflix is running into a problem that has long plagued traditional movie studios and broadcast networks. The $159 billion video-streaming service added fewer subscribers than its own forecast in the second quarter, blaming it on a less appealing line-up of shows. The unpredictability of hits and flops is straight-up old-school Hollywood.

The firm led by Reed Hastings loves setting targets that it will then, if anything, overshoot. It’s rare for Netflix to miss. So its announcement on Wednesday afternoon that it fell almost 50% short of the 5 million net new subscribers it had set for itself was a grim surprise.

There were some other troubling trends, too. Netflix actually lost customers in the United States - only a small amount, but this is a company unaccustomed to declines. Shares fell more than 10% in after-hours trading.

In a letter to shareholders, Netflix acknowledged a price hike earlier in the year played a small role for the shortfall. But the spotlight was reserved for its lackluster so-called slate – Tinseltown lingo for TV shows and movies – which lacked enough viewer-grabbing big shows. The third season of its smash hit “Stranger Things” was released earlier this month, for example, too late for the second quarter. The anticipated “The Irishman” by director Martin Scorsese is due out later in the year as is a new season of “The Crown.” Hastings is betting these will pay off handsomely: Netflix is forecasting 7 million net new subscribers in the three months to the end of September – almost 1 million higher than last year’s third quarter.

Subscriber growth is an important metric for Netflix – it’s akin to TV ratings for networks and box-office receipts for movie studios. But predicting smash hits is hard and when lightning strikes – Walt Disney’s success with “Avengers: Endgame” for instance – it can swing results hard in one direction. TV shows or movies that tank can have the opposite effect.

It doesn’t help that Netflix missed its own estimates by such a wide margin even though competing streaming services from the Magic Kingdom and AT&T won’t launch for at least several months. With 152 million customers, Hastings’ firm has built a comfortable lead. But now it has to write a version of its rivals’ lumpy performance into its own script.

CONTEXT NEWS

- Netflix ended the second quarter with 152 million paid subscribers around the world, the company announced after U.S. stock markets closed on July 17. That’s a net increase of 2.7 million, compared with its own forecast of 5 million. The video-streaming service reported earnings of $271 million. At 60 cents a share, it compares to the mean estimate of sell-side analysts of 56 cents a share, according to data from Refinitiv. Revenue of $4.9 billion matched expectations.

(Editing by Antony Currie and Amanda Gomez)

© Reuters News 2019

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