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Netflix Q2 Earnings: How A Giant Mutant Pig Brought Home The Global Bacon

For the first time, more than half of Netflix’s subscribers are based outside the United States. “Okja” hints at out how it will dominate the next frontier.

Netflix Q2 Earnings: How A Giant Mutant Pig Brought Home The Global Bacon
[Photo: courtesy of Netflix]

In the race for eyeballs, Netflix is continuing its world domination. The company said Monday that it added over 5 million new subscribers during the second quarter of 2017, boosting its grand tally to 104 million worldwide and easily beating market expectations. The leap helps Netflix maintain its decided edge over video streaming competitors like Amazon and Hulu.

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Driving those new signups were the usual suspects: the new seasons of Netflix’s two flagship series, House of Cards and Orange Is the New Black, as well as other new content offerings that the company has been plowing money into. But international growth is increasingly key to Netflix’s success—for the first time, more than half of its subscribers are based outside the United States.

That milestone was apparent during an earnings call on Monday when a special shout-out was given to Okja, the South Korean film directed by director Bong Joon-ho, which centers on the relationship between a girl and a giant mutant pig. Netflix head of content Ted Sarandos credited the genre-mixing indie for not only “making a ton of noise” at the Cannes Film Festival, but for being “a brand halo to Netflix” and attracting new subscribers in Europe and pockets of Asia.

“We saw big signups in Korea,” Sarandos said. “For most people, they learned about Netflix for the first time when Okja was coming out in Korea. So it was a great introduction to Netflix for a lot of the world.”

Okja is a prime example of how Netflix is “trying to curate some of the world’s best content and share it with the world versus the moniker of being a disruptive tech company,” CEO Reed Hastings said on the call.

By appealing to specialized demographics and tastes around the world, Netflix is fulfilling its ambition of being a “super network,” Sarandos said, that literally has content for everyone. “We talk about addressing content needs and desires across the board,” Sarandos went on, noting that Netflix’s 91 Emmy nominations this year include a slew of categories including best comedy, drama, documentary, and film. “So we are doing across-the-board programming. We’re not programming for one niche, which networks tend to do.”

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The remark is notable considering that when Netflix first got into the original programming game, it wanted to be HBO. Now it wants to be television.

Okja underscores the importance of Netflix’s international push, and how the company is placing most of its efforts into increasing subscribers abroad, where there is the most growth potential. Only one-fifth of the company’s new subscribers were in the U.S., lending credence to the suspicion that Netflix is nearing its saturation point here.

Okja [Photo: Courtesy of Netflix]

The Next Frontier

Asia, in particular, is a focus. Although Netflix operates in 190 countries around the world, China remains an untapped market, due to regulatory issues, and the service has faced hurdles in India, where internet speeds are an issue and there is competition from rivals like Amazon. “With Asia, we’ve got a lot more to learn,” Hastings said. “We’re really expanding a lot in India and Japan. We’re figuring it out market by market. But Asia’s very unique and very large, so we see a huge opportunity for us over the next couple of years. All of us will be spending more time there and investing more.”

“Matching the program to local tastes is really the key,” Sarandos added. “As we look to Asia, we have to get better and better at matching those tastes. And those tastes are not as easily aligned with Western tastes.”

Making programming for a global audience costs money, of course, and this year Netflix is plowing $6 billion into content. The only company spending more is ESPN, which is allocating $7 billion to programming. In addition to TV shows, Netflix is going full throttle on the feature-film side. The company engaged in a two-week bidding war and coughed up $90 million to land the Will Smith cop procedural Bright, due out in December. And it spent north of $100 million on the Martin Scorsese film The Irishman, starring Robert De Niro, Harvey Keitel, and Joe Pesci.

What, Us Worry?

When asked whether he was “comfortable” with Netflix’s spending and the $603 million negative cash flow it’s created, Hastings said: “Look, when we produce an amazing show like Stranger Things. That’s a lot of capital up front, and then you get a payout over it over many years. And seeing the positive returns on that for a business as a whole is what makes us comfortable that we should continue to invest and integrate to basically self-develop as many properties as Ted can find.”

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“That combination that it’s well spent and we can raise it, makes us very excited,” he added.

As for the fact that more new players, like Apple and Facebook, which are both ramping up their original programming efforts, will drive up costs even more, Sarandos was unfazed.

“Internet TV is an enormous space,” he said. “There’s going to be lots of competition. And as they come in, if they’re going to bid up the cost of the best stuff, that’s great. It’s great for consumers, because more things get made. And it’s great for creators, because there are more bidders at the table. So we expect the cost to go up on the top, premium things. But I think that’s a good result for everybody.”

Still, the company has been exercising more restraint lately, suggesting that there are, in fact, limits, even at Netflix. Baz Luhrmann’s pricey series The Get Down was cancelled after one season, as was Girlboss. The Wachowskis’ Sense8 also recently got the ax.

“The more shows we add, the more likelihood in absolute numbers that you’ll see more cancellations, of course,” said Sarandos. “But that’s only novel on Netflix. And it’s still novel, because on network TV about one-third of the content gets cut in the first season versus our content, which is mostly renewed. It’s not because we’re less careful about it, it’s because we can more efficiently build it.”

But the overall tenor of the day was buoyant. Subscriber growth plus increased operating revenue—$2.79 billion, up from $2.11 billion during the same period last year—sent Netflix’s stock soaring nearly 10% in after-hours trading to $175.45 a share.

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Hastings was relaxed and chipper, wearing a dress shirt with no tie. When he was asked about the future, he smiled and said he hoped for, “More watching, less sleep.”

About the author

Nicole LaPorte is an LA-based writer for Fast Company who writes about where technology and entertainment intersect. She previously was a columnist for The New York Times and a staff writer for Newsweek/The Daily Beast and Variety.

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