David Farnor | On 17, Oct 2017

5.3 million people signed up to Netflix in the third quarter of 2017, as the streaming giant’s momentum shows no sign of stopping.

The figure marks a record number of additions in any Q3 since the service’s launch, rising 49 per cent from the same three months in the previous year. It also surpassed the company’s own expectations, both at home and abroad: 4.45 million new subscribers were added internationally, with 0.85 million in the US. Over the year to date, Netflix has added 15.5 million members, up 29 per cent versus the same period last year.

Global growth continues to be priority for the streaming service, as it races to stay ahead in an increasingly competitive video landscape – and that growth both fuels funding for original content, as more people pay their monthly fees, and adds to the service’s overheads, as marketing and production costs mount up. In Q3, Netflix’s global streaming revenue rose 33 per cent year-on-year, driven by a 24 per cent increase in average paid memberships, while operating income almost doubled year-on-year to $209 million.

Netflix expects that growth to continue, although Q4 is forecast to see 6.3 million new subscribers – 1.25 million in the US, 5.05 million internationally, in total down from 7.05 million in Q4 2017. This forecast is lower partly because last year’s period was a record high for Netflix, and partly because Netflix has recently introduced a rise in fees.

“Increased revenue over time will help us grow our content offering and continue our global operating margin growth,” said CEO Reed Hastings in a letter to shareholders, adding: “Internet entertainment is delighting consumers, and we are staying at the forefront of this once-in-a-generation opportunity.”

Staying at the forefront, though, is a trick proposition, as companies such as Disney decide to launch their own over-the-top subscription services.

“While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,” added Hastings. “Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes.”

Indeed, Netflix original investment currently makes up over a quarter of its P&L content budget and will continue to grow. With $17 billion in content commitments over the next several years and a growing library of owned content ($2.5 billion net book value at the end of the quarter), Netflix aims to spend between $7 billion and $8 billion in 2018.

As a part of that, Netflix is also changing its type of production, moving from second-run content to licenced originals and Netflix-produced originals. That is now culminating in deals directly with creators, such as Shonda Rhimes (How to Get Away with Murder), and the acquisition of Millarworld, the empire of comic book writer Mark Millar.

“Our goal is to work with the best creators in the world and own the underlying intellectual property so that we can continue to deliver amazing content to our members across the globe,” concluded Hastings.

One significantly growing part of that content is Netflix’s increasing original film efforts, with Death Note, Naked and To the Bone all premiering in the last year. Hastings Noted that Netflix is “making good strides” on original films, “as measured by member viewing relative to our investment”. With films such as The Meyerowritz Stories (New and Selected) arriving this month, and premiering at the London Film Festival, Netflix is demonstrating that it can earn strong acclaim with its original features, compared to titles such as Naked or many of its Adam Sandler comedies. The coming quarter, meanwhile, will see the arrival of its biggest original movie to date: Bright, from David Ayer, starring Will Smith.

The quarterly figures are released just as Netflix prepares to debut Season 2 of Stranger Things, one of its most famous original series so far.

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