And then earlier this week, NetFlix reported Q2 earnings. You can read the Letter to Shareholders here. NetFlix closed the quarter with nearly 24.69 million subscribers – a 65 percent jump from the year-ago period. Netflix expects to finish the third quarter with 25 million subscribers – 12 million taking the hybrid service, 10 million choosing streaming only and 3 million subscribing to the DVD-by-mail service.
The future of the company is clearly streaming. In the letter to shareholders Netflix reported 75 percent of its recent subscriber gains were to the streaming only service. They also wrote, “With the rapid adoption of streaming, DVD shipments for Netflix have likely peaked. Also, in Q2 the total number of subscribers who were on hybrid plans (and, therefore eligible to receive DVDs) declined slightly from Q1 (emphasis added).”
I don’t view the price increases as grab at revenue growth explicitly. Rather I see it as a push to keep the streaming service relevant. In order for the streaming service to remain relevent (and ultimately prosper) NetFlix needs a rich, deep, and current catalog. This is clearly a focus. Again quoting from the letter to shareholders:
We’ve spoken frequently of how we are directing savings generated from declining DVD demand into additional streaming content and marketing. During the quarter, we substantially increased sequential spending on streaming content as titles from our new content deals (discussed below) became available for streaming.…