Netflix reports surge in new members

Netflix’s larger-than-expected rise in new members eases concerns about the fallout from earlier price increases.

The TV series Narcos, about a Colombian drug lord, has helped draw new members to Netflix.

Netflix has reported a larger-than-expected increase in new members, easing concerns about the fallout from earlier price increases, and said it intends to licence its shows in China.

The streaming-video service added 3.57 million new members in the September quarter, up from its July forecast of 2.3 million additions. The results come a quarter after Netflix reported the weakest subscriber expansion in two years.

Shares of Netflix surged 20 per cent to $US119.40 in after-hours trading. Before that, the stock had fallen 13 per cent this year as the company has struggled to keep up the pace of subscriber growth, despite an ambitious expansion abroad.

In the US, Netflix added 370,000 subscribers in the September quarter, ahead of its forecast of 300,000, though the number still slowed sharply from the year-ago quarter when it added 880,000 domestic subscribers.

Internationally, Netflix added 3.2 million subscribers, compared with its guidance of 2 million. While that is a boost from the year-ago quarter’s 2.74 million subscribers, it is a relatively small gain considering that it launched in more than 130 countries in between.

Various factors helped boost Netflix’s international subscriber growth this quarter. Netflix called out Narcos, the Latin American drug drama, as a show that had “positive impact” on subscriber acquisition across all of its markets as it came back for its second season in September.

Netflix also has been targeting its user interface in markets like Poland and Turkey, accepting payments in local currencies and offering local languages options for navigating its apps and for streaming the content. Netflix said it has seen “nice gains” in viewing and retention as a result, and that it is going to expand the initiative in other countries.

In a letter to shareholders, Netflix said it is going to explore opportunities to license its shows to other online players in China, in a way to build Netflix’s brand. Mr Hastings recently said “it doesn’t look good” for Netflix’s prospects of entering China as a stand-alone streaming service.

The video company said the revenue contribution from China licensing will be “modest.” In the long term, it still hopes to “serve the Chinese people directly, and hope to launch our service in China eventually.” China, North Korea and Syria are among the countries where Netflix doesn’t operate.

Netflix said it expects to lose more money internationally next quarter as it invests in more original content across its global markets. The company plans to boost its spending on content to $US6 billion next year from $US5 billion this year, and increase the number of original programming hours to more than 1,000 next year from 600 hours this year.

The company reiterated that it expects to start delivering material global profits next year.

For the current quarter, Netflix expected 1.45 million new additions in the US and 3.75 million abroad, beating analysts’ projections for an additional 1.3 million domestic subscribers and 3.3 million abroad, according to analysts surveyed by FactSet. Over all, Netflix expects to add 5.2 million subscribers in the fourth quarter, compared with the 5.59 million it added in the year-ago quarter.

Netflix attributed the year-over-year decline in new subscribers to the uptick in cancellations as it increased prices for those customers who had been temporarily locked in lower-priced packages. That process would be over in the fourth quarter, the company said. The churn has been more pronounced in the US, where more than half of its customers had been “grandfathered” at the lower prices.

The company said it ended the September quarter with about 83.3 million paid memberships.

Over all, for the third quarter, Netflix reported profit of $US51.5 million, or 12 cents a share, up from $US29.4 million, or 7 cents a share, a year ago. Revenue rose to $US2.29 billion from $US1.74 billion in the year-ago quarter.

Analysts surveyed by Thomson Reuters had projected earnings of 6 cents a share on $US2.28 billion in revenue.

For the current fourth quarter, Netflix projected earnings of 13 cents a share, compared with the average analyst estimate of 7 cents a share, according to Thomson Reuters.

With Shalini Ramachandran

Dow Jones Newswires