Netflix has just released its Q2 2016 result and the result is another sign of worry for anyone betting big on video on demand, VoD market in general.
Many analysts had thought its Q2 numbers were going to have positive trend, but the company’s second quarter earnings further says more about what is to come for Netflix and its peers in the category.
The company’s net income fell from USD2,3 billion Q2 2015 to USD1,7 billion in the last quarter. The slump in revenue is accentuated further from a year on year view. In December of 2015, Netflix’s net income was USD5,7 billion, for the first half of 2016, net income has crashed to USD4,1 billion.
The most expected part of its is subscription numbers. For the second quarter of the year, Netflix only added 162,000 subscribers as its total active subscribers struggled from 46,967 million in Q1 to 47,129 million in Q2 2016.
With an increase of marketing expenditure from USD 81,9 million in the first quarter of the year to USD86,8 during the period under review, Netflix’s paying subscribers staggered between 45,714 million in Q1 to just about 46,004million in the second quarter.
For all it is showing, Netflix is facing many challenges. External competition from regional players is checkmating its global ambition. Naspers, owners of DSTV quickly floated its own VoD company called ShowMax after the company foresaw the impact of Netflix’s access to Africa might erode its subscriber base especially among its premium users. While it can be argued that Africa is a smaller market for Netflix to depend on, the future of the company’s growth depends on such markets.
Netflix only opened its website to the world, but the company is still US-focused. No marketing and sales ‘boots on the ground’. The company only has few titles that appeal to local subscribers, its library is nearly 90% Hollywood and few original titles.
As a way forward, Netflix should perhaps look at acquisitions in key regions. China is a big market for Netflix to tap into but there are serious doubts if Netflix can win in China with Netflix. Youku, a video streaming company in China for instance gets about 500 million monthly active users with over 800 million video views per day. Netflix should look towards mergers should acquisition proof difficult.
As for the VoD market, this is yet another reasons investors will double down on their holdings of the category.
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