As Domestic Growth Slows, Netflix Focuses Globally and Creates New Viewing Metric

With 161 million subscribers, the streaming service continues to brush off competitors

Netflix said 76 million households watched its fantasy original The Witcher in the first four weeks it was on the service.
Netflix

Facing increased pressure from new, deep-pocketed competitors in the U.S., Netflix is looking abroad for more growth opportunities as it faces a continued slowdown in domestic subscribers.

In the fourth quarter, Netflix added 42,000 new subscribers in the U.S. (55,000 including Canada)—bringing it to just over 61 million in total—and acknowledged it is facing increased churn. In a letter to shareholders today, Netflix acknowledged that “recent price changes” and “competitive launches” domestically were affecting U.S. growth rates—referring to its price hikes last May and the rollout of new services like Disney+ and Apple TV+—but the company pointed to robust viewership of its newest originals as proof it is continuing to break through.

Outside of the U.S., the picture for Netflix is far rosier. In the fourth quarter, the company netted 8.3 million new international subscribers; for the first time, the company exceeded 100 million memberships outside the U.S., with 106 million international customers and a total of 167.1 million global subscribers.

“Streaming entertainment is a global phenomenon, and we’re working hard to build our early progress,” the company said in its letter to shareholders.

Last quarter, Netflix said it planned to spend $15 billion on original programming in 2019, and while U.S. originals are generally the buzziest, local originals are big drivers for international growth, too. The company said it will invest heavily in Korean originals to drive international growth and will continue determining the best business offerings in different regions, like mobile-only plans in countries like India, Malaysia and Indonesia.

In Netflix’s investor video, chief financial officer Spencer Neumann said the company was focused on growing its international footprint, even as the pricing in certain markets is lower than in the U.S. That investment extends to content: Chief content officer Ted Sarandos said investment in local programming, particularly in Japan and Korea, had the potential to pay off not just in those markets but globally.

“The expansion of people finding stories from around the world is only going to make the opportunity bigger and bigger,” Sarandos said, pointing to director Bong Joon-Ho’s film Parasite as recent proof of foreign programming’s potential to attract an international fanbase.

As is typical for Netflix’s earnings releases, the streaming service shared select data about the performance of some of its originals. The fantasy series The Witcher was watched by 76 million households in the first four weeks of the show’s availability on Netflix, putting it on track to be the service’s biggest Season 1 release ever, the company said.

Netflix also dropped other impressive-sounding metrics, including a projection that 54 million households will watch the second season of the thriller You (the first season of which aired on Lifetime) within the first four weeks of the season’s availability on the service. Action movie 6 Underground from Michael Bay and starring Ryan Reynolds drew 83 million household views within four weeks.

However, Netflix has made a major change to how it measures viewership in a way that will substantially inflate its future viewership numbers. The company said it is no longer counting views as when 70% of an episode or movie is viewed, as had been its previous metric.

Instead, it will define a view as when a household watches just two minutes of a program. Netflix estimated this will inflate its viewership metrics by about 35%. That two-minute mark, for reference, represents less than 1% of Martin Scorsese’s Netflix original film The Irishman, which has a run time of 209 minutes. (Notably, Netflix did not spin out viewership numbers for The Irishman in its shareholders letter.)

Netflix is fighting off a new wave of deep-pocketed competitors that are also looking to capitalize on shifting consumer habits. In addition to Disney+, Apple TV+ and Amazon Prime Video, Comcast-owned NBCUniversal will debut the primarily ad-supported streaming service Peacock nationally in July, and AT&T-owned WarnerMedia is readying the May debut of its own streaming service, HBO Max.

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