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Netflix released Q1 2018 earnings on Monday afternoon that continued the streamer’s global cash grab. Overall revenues reached $3.7 billion in the quarter, up 40% year-over-year (YoY) — a company record and an acceleration versus 33% growth in Q4 2017.
The revenue growth acceleration stemmed in part from a price hike that rolled out in Q4 2017, another sign of just how sturdy Netflix’s relationship is with consumers.
Here are the top trends coming out of earnings, per the letter to investors:
Subscriber growth continues as Netflix pushes its dual strategy of aggressive international expansion, and content and marketing investment. Despite being a relatively mature market, US domestic subscriber growth is still happening, although less rapidly.
The vast majority of sub growth is coming from outside the US, and international markets are expected to continue driving most future growth. In Q1, Netflix added 7.41 million net subscribers, up 50% YoY, a new Q1 record for the company. Of those additions, 1.96 million came from the US, and 5.46 million (73%) came from international markets. The streaming video company now has 125 million total subscribers worldwide.
Netflix’s content investment strategy is seen as the key instigator for its growth, especially as Netflix invests more in local-language fare. In 2018, Netflix plans to spend $10 billion on content and marketing: $8 billion in content (both originals and licensed acquisitions), yielding 700 originals in total; and $2 billion on marketing, with Q1 marketing spend reaching $479 million, up 77% YoY. Going forward, more spend will go to producing original content or licensed originals as a percentage of overall investment, compared with spending on licensed content.
Netflix has now produced original content in 17 different countries, including Mexico, Brazil, Japan, India, and the UK, and the company expects that figure to significantly expand. Netflix is also driving sub growth through its integration partnerships with cable distributors and mobile operators, both domestic, like its newly expanded integration with Comcast, and international.
Executives also reiterated several things they would likely never do with the business, including slinging news or ads, adjusting its movie release model, or trying to operate in China. Hastings said that being ad-free means that they escape regulations that typically befall ad-supported media companies. They also escape the myriad issues now plaguing digital (and traditional media) advertising. Netflix Chief Content Officer Ted Sarandos also sought to banish the idea that Netflix’s recent pushes into talk shows were early signs of it getting into the news business.
Rather, its nonfiction content investments will stay in the realm of documentary (both short-form and film-length) and entertainment-oriented talk shows. Further, Sarandos said they would not be changing their day-and-date release model to comply with awards competition requirements, citing the success of “The Cloverfield Paradox” launch, which they they surprise-released "without waiting for theatrical release windows" immediately after running a Super Bowl ad for the film. As most US media and tech companies are locked out of operating in China, Netflix CEO Reed Hastings said that they would continue to license their shows in the Chinese market “the way HBO does.”
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