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Skeptics, Step Aside: Here’s Why Netflix Keeps Defying All Growth Expectations

In an earnings call Monday, CEO Reed Hastings took a jab at TV critics, saying Google Trends is a better indicator of commercial success. Ouch.

Skeptics, Step Aside: Here’s Why Netflix Keeps Defying All Growth Expectations
[Photo: Robert Viglasky/ Netflix]

Netflix continues to blow through projections, casting naysayers to the side, as its subscriber growth shows no signs of abating. Despite a price increase of 10% implemented last fall, the streaming giant managed to nab 8.3 million new subscribers in the fourth quarter of 2017 (including 2 million in the United States), shooting its total subscriber base up to 117 million worldwide.

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The jolt, which far surpassed Wall Street’s and even Netflix’s own projections, caused the company’s stock to soar 9% up to $248.24 a share in after-hours trading on Monday, putting its market value at $100 billion for the first time.

The company attributed the growth to its especially strong fourth-quarter content slate, which included the second seasons of popular shows like Stranger Things, The Crown, and Black Mirror. Netflix’s head of content, Ted Sarandos, also said that the sci-fi tentpole Bright, which dropped in December, was another strong performer that did well across the globe, despite being hammered by critics. Sarandos bluntly dismissed film reviewers, saying that “critics are an important part of the artistic process, but they’re pretty disconnected from the commercial prospects of the film.”

“The way we look at it, if people are looking at (a film) and loving it, that is the measurement of success,” he added.

Netflix CEO Reed Hastings repeated this jab, calling critics “disconnected from the mass appeal” and saying that Google Trends is a better indicator of a film or TV show’s popularity.

Hey, Big Spender

Netflix’s surge in users and revenue—it generated $11.6 billion in 2017, a 36% increase year over year—has bolstered its confidence in spending. Beyond the $8 billion being spent on content this year, Netflix is increasing its marketing budget from $1.3 billion to $2 billion, acknowledging that with a slate of projects that range from small indie movies like Okja to Bright, promoting projects primarily on the Netflix platform is not enough anymore.

In its letter to shareholders, Netflix said that “testing results indicate” that spending more on marketing “is wise. We want great content, and we want the budget to make the hits we have really big, to drive our membership growth.”

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Netflix also acknowledged a $39 million write-down in the fourth quarter. While it did not reveal which projects had been shelved, CFO David Wells said that the losses were “related to the societal unrest around sexual harassment, so it was somewhat unusual in that respect.” According to Deadline, the projects in question were the final season of House of Cards and the feature film Gore, a biopic about Gore Vidal, both of which starred scandal-plagued Kevin Spacey.

Netflix’s domestic growth was the most surprising, given the prevailing wisdom that U.S. membership was starting to hit a plateau and that the company would need to rely primarily on international growth going forward. Hastings pointed out that “five years ago, we said we thought the market (for U.S. streaming) was something between 60 and 90 million (homes). We’re still only at 55 million. We have a ways to go.”

The Mouse In The Room

Much discussion during the conference call was spent on Disney’s impending acquisition of 21st Century Fox’s film and TV studios, a mega-merger that some have described as a “Netflix killer,” given the vast amount of content that Disney will be able to funnel through its streaming service that’s due out in 2019. But Hastings remained cool and diplomatic, saying that he didn’t see Disney’s streaming service “as a threat to us any more than Hulu is.”

He went on to praise the strength of the Disney brand and how that would translate to “real success” in streaming. “I know I’ll be a subscriber, just as many Disney and Fox executives subscribe to Netflix. We’ll all learn from one another.”

Though he couldn’t help but add, “We’ve got a path ahead. Everyone else in streaming is trying to find one.”

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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