The numbers for Netflix's second quarter are in, and despite recent criticism, the company's not too far from hitting its mark. Subscriptions are up by 1.8 million, to more than 25 million global subscribers, an increase of 70% year-over-year, while global revenue hit $789 million, a 52% uptick from the same quarter last year—though slightly less than the $791 million analysts had expected.
But outside the numbers, Netflix set apart a significant space in its letter to shareholders to address the backlash from its recent subscription plan price hike of roughly 60%, and to respond to growing competition in the space from Hulu Plus, Amazon, and HBO Go.
Netflix's CEO Reed Hastings and CFO David Wells expressed regret in their shareholder letter for recent price increases. "It is expected and unfortunate that our DVD subscribers who also use streaming don't like our price change," the pair wrote, referring to the increase for its streaming and DVD-by-mail plan from $9.99 to $15.98 per month. "Some subscribers will cancel Netflix or downgrade their Netflix plans. We expect most to stay with us because each of our $7.99 plans is an incredible value." (Netflix will soon offer two distinct plans: a streaming-only plan and a DVD-only plan, each for $7.99.)
"We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content," the executives added.
But the purpose of the price increases is clear: to boost use of its streaming-only service. Indeed, the company said that its streaming-only plan is booming in popularity, with nearly 75% of new subscribers signing up for it; meanwhile, Netflix said it's likely that DVD shipments have peaked, thanks to rapid adoption of streaming. With its new price plans, the company said it expects just 3 million subscribers to stick with its DVD-only plan, while 10 million would adopt streaming-only plans. Roughly 12 million would adopt a combination of both plans, for the higher price.
Hastings and Wells also spent time addressing growing competition in the online streaming space. The two said that its largest competition in the space would be improved MVPD (multichannel video programming distribution) services, citing the example of HBO Go, the on-demand service that is growing in popularity thanks to its online platform and suite of mobile apps. "While HBO GO and Netflix do not have overlapping content, and many consumers subscribe to both Netflix and HBO, we do compete with HBO for studio content and for viewers’ time," Netflix said. The letter also said that it has kept mindful of Hulu Plus, but says it's adding subscribers at a far faster rate, thanks to bigger investments in content and marketing. Netflix also made it clear they would not be acquiring Hulu: "We aren’t planning to bid on Hulu because most of its revenue is from providing free ad-supported streaming of current season TV shows, which is not our focus."
Lastly, Hastings and Wells mentioned a new player in the field, Amazon Prime, but without much concern. "So far, we haven’t detected an impact on our business from Amazon Prime," the two wrote.
[Image: Flickr user guano]