In a July 21 letter to shareholders, Netflix corporate officials said they plan to invest further to improve the global customer experience through new content and launch in several new European markets.
CEO Reed Hastings and Chief Financial Officer David Wells said in the letter that the Netflix U.S. member base grew to more than 36 million “on the strength of our ever-improving content offering, including Orange is the New Black Season 2. For Q3, we expect about 1.3 million net additions, comparable to Q3’13 in which we premiered Orange Season 1. We are pleased our net additions in the U.S. remain on par with last year.”
In September, Netflix will launch in Germany, France, Austria, Switzerland, Belgium, and Luxembourg.
“This launch into markets with over 60 million broadband households will significantly increase our European presence and raise our current international addressable market to over 180 million broadband households, or 2x the number of current U.S. broadband households,” the letter says. “Our international contribution loss of ($15.3) million has been rapidly approaching contribution profitability as we see improvements across all existing markets. Our broad success from Argentina to Finland has convinced us to further invest aggressively in global expansion. Our European expansion this quarter will add new expenses to the segment, so we expect a consolidated contribution loss of ($42) million for the international segment in Q3. Even after our upcoming expansion in Europe, we’ll only address about one-third (271 million of 728 million) of current global broadband households, providing a great opportunity to build on our international success beyond 2014.”
Hastings and Wells noted that the release of Orange is the New Black Season 2 “has been every bit the global media event we had hoped for; critically acclaimed and embraced by a fervent and growing fan base. In its first month, Orange became the most watched series in every Netflix territory, with many members either watching for the first time or re-watching Season 1, in addition to the 13 new episodes of Season 2.”
Earlier this month, Netflix original series and documentaries received 31 Emmy nominations, more than double the 14 received in its first year of releasing original programming.
Netflix has come a long way in a short period of time, and customer loyalty remains a top priority for company brass after its major gaffe at the end of 2011 when Hastings announced dividing the company into two entities–one for streaming movies over the Internet; and the other, Qwikster, a separate DVD-only business. Also, a proposed monthly price hike from $9.99 to $15.98 did not sit well with customers–so much so that 800,000 members canceled their subscriptions. Hastings quickly pulled the plug on Qwikster, but not after the membership loss occurred.
On the heels of that near catastrophe, Netflix rebounded and became almost prescient.
Before Netflix launched the political drama, “House of Cards,” CEO Reed Hastings and Chief Financial Officer David Wells didn’t understate their confidence in a letter to shareholders.
“We believe that Feb. 1 will be a defining moment in the development of Internet TV,” Hastings and Wells wrote in the letter. To that end, Hastings and Wells appear to have been correct since, according to a recent survey conducted by investment firm Cowen & Co., 86% of Netflix subscribers indicated they are less likely to cancel their membership due to “House of Cards.”
On Feb. 1, 2013, Netflix released all 13 episodes of “House of Cards” in all of its markets, allowing members the freedom to watch the show–which stars Kevin Spacey and Robin Wright–at their convenience. Spacey plays Frank Underwood, a Democrat from South Carolina’s 5th Congressional District and House Majority Whip. After Underwood is passed over for an appointment to Secretary of State, he decides to exact his revenge on those who betrayed him.