Netflix gains global subscribers, but growth is slowing down

Netflix had a predictably strong first quarter of 2016 in international markets beyond the US, according to its quarterly earnings report (PDF link) that came out Monday.

The streaming service that expanded simultaneously in 130 countries around the world at the beginning of the year reports it has reached 81.5 million subscribers globally.

Of those, 34.5 million were outside the US during the first quarter of 2016 – 4.5 million more than last quarter. Netflix doesn’t break that number further into individual countries, but the gain is associated with the global launch. The company expected a gain of 4.35 million international subscribers for the quarter, so the result is a welcome one.

See: Inside Netflix’s battle to win the world

Trouble in paradise

Netflix projects 84 million subscribers, 36.5 million of whom will be international for the second quarter of 2016. However, its projected 2-million-subscriber gain for that period has seemingly spooked investors and analysts, who expected an increase of 3.45 million,according to Fortune.

Netflix will have to focus on its new global markets to increase subscriber numbers.

As a result, the company’s share price is currently down 13 percent at US$97.05. Amazon’s announcement that it’s making its Prime streaming service standalone with a monthly subscription might also have something to do with the market getting nervous.

Netflix reports an 18 percent rise in revenue year-over-year in the US, and a 57 percent increase in revenue year-over-year internationally. However, the numbers show the company’s growth is… not stalling, but certainly slowing down. In the US, it’s expecting to get only 500,000 new subscribers in the next quarter.

The price increase it will gradually roll out internationally this year may cost it some subscribers, but thanks to the increased revenue-per-user, Netflix says it expects to raise its content spending for production of original material and licensing of third-party content from US$5 billion in 2016 to US$6 billion in 2017 – which means more shows and movies for viewers.

A global market

Netflix will have to focus on the global markets it recently launched in. To increase its subscriber numbers it must boost its catalog in the new nations, at the moment considered lackluster by a big part of the audience. It will also have to start providing more language and payments options, which it says it’s working on.

A big request from several countries that don’t have particularly great internet infrastructures is offline viewing, something that Amazon’s offering will include and Netflix competitors in Asia already do.

See: How Patrick Grove plans to run circles around Netflix

China remains a big blind spot in the company’s international strategy, and that doesn’t look like it’s going to change anytime soon. “On China, we are continuing discussions but have no material update on our approach or timing. Whatever we do will have only a modest financial effect in the near term,” the report says.

In the meantime, Netflix will keep ramping up production of original shows and movies for international audiences in addition to its robust US lineup. Its first French series, Marseille, starring Gérard Depardieu, launches in May, while Japanese original series Hibana follows in June. Japanese anime Perfect Bones is in production, as well as shows in Brazil, Italy, Germany, and Mexico. Snowpiercer director Bong Joon-Ho’s new film, Okja, is expected in 2017.