It's official. Investors and analysts widely expected tepid subscriber growth numbers from Netflix (NASDAQ: NFLX) during its recently ended second quarter, and they got exactly that. While the company technically topped its own guidance of 1.0 million, the actual net addition of 1.54 million paying customers is still unusually low. Worse, Netflix actually lost North American subscribers, shedding 430,000 customers in the U.S. and Canada.
It's no small matter. Assuming the rest of the world is traversing the same path as Netflix's original domestic market -- and there's no reason to think it isn't -- the company's other markets should soon start to run into the same headwind for the exact same reason.
That's the scary part.
Image source: Netflix.
By the numbers
To say the past year and a half has been a big one for the streaming video industry is a considerable understatement. It's been a watershed moment, first with Walt Disney's (NYSE: DIS) launch of Disney+ in late 2019, followed by the debut of AT&T's (NYSE: T) HBO Max and Comcast's (NASDAQ: CMCSA) Peacock shortly after the COVID-19 pandemic took hold. Even relatively small-time production outfit Discovery (NASDAQ: DISCA) (NASDAQ: DISCK) has jumped into the streaming game, unveiling Discovery+ in late 2020 and then rolling it out to U.S. consumers in January of this year.
These services, of course, were well received by people stuck at home due to pandemic-related shutdowns.
At least in the U.S., though, bored consumers weren't simply embracing every streaming platform they could plug into. They've been budget-minded, and increasingly so, opting to cancel their Netflix subscription specifically because they're signing up for another, rival service.
That's the take from market research firm Kantar, anyway, based on streaming data collected by its consumer survey platform Entertainment on Demand. The platform regularly polls a few thousand people about their streaming video habits, and one of the survey's most curious recent findings is that for the three-month stretch ending in June, Netflix only accounted for 8.4% of new streaming service signups in the U.S.
That figure trails that of the aforementioned Discovery+, Disney+, and HBO Max, all of which trail new Amazon (NASDAQ: AMZN) Prime signups, which accounted for a stunning 24.2% of new domestic subscription video on demand enrollments. Oh, and Netflix's share of new streaming signups has trailed all of those rival services' new U.S. enrollments every quarter since Q3 of last year, except for Discovery+ in the first quarter of this year. And bear in mind that Discovery+ didn't debut in the U.S. until Q1 had already begun.
Domestic streaming services' share of new signups:
|Q2 2020||Q3 2020||Q4 2020||Q1 2021||Q2 2021|
Data source: Kantar.
It gets worse. Not only is Netflix not adding as many newcomers as its competitors are, but it's also losing existing subscribers. Kantar's data further reveals that Netflix's total penetration of U.S. households has fallen from 74% as of the end of last year's Q2 to 67% as of the end of last month.
A dynamic that's too big to ignore
To be fair, Netflix is still the market leader here and abroad, serving 74 million U.S. and Canadian households, and 135 million people across the rest of the world. It was always going to be the first of these names to reach the saturation wall, just by sheer virtue of its size.
Nevertheless, this is a new dynamic for Netflix shareholders. They've never really been forced to evaluate the company's competitiveness with alternative services. That time is now here, and given that Disney is well into an international push with Disney+Star while Comcast and ViacomCBS (NASDAQ: VIAC) (NASDAQ: VIAC.A) are reportedly mulling over an international joint streaming venture, the same writing is on the wall for Netflix's overseas presence.
Netflix may already be sensing this overwhelming pressure, too. The outlook for only 3.5 million new (net) subscribers in the quarter currently underway is below the analyst community's consensus of 5.86 million. And while some observers are hailing the company's foray into gaming as a creative revenue-generating idea, it's just as arguable that it's a sign Netflix is running out of expansion ideas for its core streaming business.
At the very least it's an overhang no Netflix shareholder can afford to ignore.
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