Netflix continues to gain subscribers, adding over 6 million paid members in the third quarter, 5 million of them outside United States, beating its own forecasts. Netflix is now focussing on the standard metric of paid subscribers, rather than the headline figure of total members, which includes millions of free trials. The company is forecasting it will reach over 138 million paid subscribers by the end of 2018.
The number of net additions for paid members was a million more than Netflix had forecast, having fallen short of its own expectations the previous quarter.
For the fourth quarter Netflix is forecasting 7.6 million paid net additions, which is up 15% on the previous year.
The company is placing more emphasis on the number of paid net additions, which is our standard industry metric, rather than total net additions, which includes free trials. Growth in paid memberships can therefore be predicted more accurately.
“I think by focusing going forward on paid, we’ll be able to be a little more accurate and focus on the fundamentals,” the chief executive Reed Hastings told analysts.
Netflix is only going to provide forecasts on paid memberships from 2019 and in 2020 it will stop reporting numbers including free trials. This is to be applauded, but it will require an adjustment for those that have tended to report the larger headline numbers.
There were over 6.7 million members on free trials at the end of the third quarter, compared to 5.2 million on free trials a year previously. That reflects the overall growth in paid subscribers, which have increased by 26 million, or 25% over that period.
Looking at the cumulative weekly paid additions for 2018, the rate of growth has been higher than in previous years. Even so, adding over 27 million paid subscribers in a year to reach the forecast 138 million by the end of 2018 be a challenge, which no doubt Netflix is confident of achieving.
Of those, Netflix is aiming at 58.46 million paid subscribers in the United States at the end of the year, moving close to the figure of 60 million that it has long claimed is achievable.
Netflix says that it anticipates being able to meet European Union programming quota requirements by evolving its content offering. New rules will require services like Netflix to devote a minimum of their catalogue to European works and some member states are seeking to require them to invest a portion of local revenues in European works. Netflix claims that quotas can “negatively impact both the customer experience and creativity”.
The company rightly observes that it competes for entertainment time with other screen media. “In that competition for screen hours, we lose most of the time, but we win enough to keep growing.”