The steady consumer march toward internet TV seems to have faltered this week, with shares in video streaming service Netflix plunging by a quarter during after-hours US trading following a warning from the company that its subscriber numbers had grown less vigorously than expected.
Subscribers were projected to grow by 3.7 million in the three months to September this year, but they actually grew by 3 million, a shortfall the company attributed to the $1-per-month subscription rise introduced in May (in the US, that bumped the subscription up to $9).
But Netflix investors were already in twitchy a mood. Time Warner’s successful TV channel, HBO, is on course to launch its own internet streaming service in 2015: this has set nerves on edge over in the Netflix investment camp. Streaming content from HBO will represent a pretty major source of competition, and the subscriber shortfall did nothing to ease shareholders’ overactive adrenals.
If the 25 per cent collapse in shares continues into normal trading for another day, an eyewatering $7 billion (£4.4 billion) in company value will be vaporised. The timing is ironic, following a deal that was widely regarded in the media industry as a major coup: Netflix has agreed rights to screen all 10 series of the massive “Friends” sitcom in the US and Canada.
Seeking to forestall an outbreak of investor hyperventilation, Netflix issued a letter to its shareholders which stated:
“For the prior three quarters, we under-forecasted membership growth. This quarter we over-forecasted membership growth. We’ll continue to give you our internal forecast for the current quarter, and it will be high some of the time and low other times.”
The statement continued:
“We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing. The effect of slightly higher prices is factored into our Q4 forecast.”
The company also confronted the HBO issue, saying that it always considered the broadcaster to be its “primary long-term competitor” and that the competition would make both services better. HBO’s decision to launch an internet streaming service was, Netflix said, “inevitable and sensible.” Many, the statement continued, would subscribe to both has they offer different shows, “…so we think it is likely that we prosper as consumers move to internet TV.”