Netflix's Plans to Take Over the World
The company's shareholder letter revealed some surprising tidbits.
Image: Martin Abegglen/Flickr
Netflix's end-of-quarter shareholder letter was released this week, detailing how the streaming leader fared at the end of 2014. Along with good financial news for the company's investors—they ended the year with a posted revenue of $1.48 billion, compared to $1.18 billion during the same quarter in 2013—the letter offered some intriguing (and sometimes, candid) tidbits about the company's secret to success and plans for world domination.
Here are the five things we found the most interesting:
1. Its original programming is paying the bills
Netflix started airing original programming in 2012 with a series called Lilyhammer, a thriller they debuted in Norway. Since then, they've slowly expanded their portfolio with a number of binge-worthy hits, and both Orange Is the New Black and House of Cards have garnered their fair share of award nods.
In its shareholder letter, the company revealed its original content is doing really well, especially in Europe. So well, in fact, that it was some of the most efficient content on the company's roster—as in, it costs the company less money to make its own shows, relative to the number of views they get, than it does to license shows from top studios.
It's no surprise then that Netflix plans to triple the amount of original programming offered on the service this year.
2. It's planning to take over the world, and sooner than it originally hoped
Netflix is already in 50 countries around the world, and their numbers have been strong enough that the company says it will be able to expand to 200 countries by the end of 2016. The service will be launching in Australia and New Zealand early this year, and the report also indicated the company is investigating how to operate services in China, too.
But while the company's success will enable it to grow more quickly than planned, it's also an attempt to stay ahead of the game. Competitors are cropping up in countries where Netflix is popular, and are trying to gain an early lead in countries where Netflix hasn't yet staked a claim.
3. It's more afraid of Popcorn Time than HBO
In analyzing the company's competition, the letter noted a few streaming services that bit the dust this year. And while HBO's own streaming service could be tough competition when it launches in the US, Netflix seemed less concerned. The company pointed to the fact that the content on HBO's Nordic, a trial streaming service, is limited to TV shows and doesn't include movies.
Rather, piracy is a much bigger, and more unpredictable threat. The letter highlighted the rising popularity of Popcorn Time—a free site that instantly streams torrents—compared to Netflix on Google search results, calling the comparison "sobering."
4. It's in a lot of debt
Given the impressive numbers reported at the end of the quarter, you might think Netflix would be in the black. But the company's rapid expansion and investment in new programming has put them in a hole, which the letter states will continue to grow over the next few years. The biggest contributor? A decision to add $1 billion to its debt to invest in more original content, given the success they've seen. The hope is that investment will pay off in the long run, allowing the service to get more per-view-bangs for its bucks.
5. The price increase probably wasn't what drove customers away
In May of last year, Netflix increased their subscription rate by a dollar to $8.99 per month. At the end of the third quarter, with subscription rates lower than forecast, the company thought the price hike must be to blame. However, on further inspection, the company now thinks that might not be what caused the dip in new subscribers.
"We now think that the decline in year over year net adds would have largely taken place independent of the price change. We've found our growth in net adds is strongest in the lower income areas of the US, which would not be the case if there was material price sensitivity," the letter reads.
Instead, the company suspects the lower-than-expected numbers were just a natural slowing of growth in the US as it reaches its saturation point.