Netflix Earnings Letter Takes On Streaming Rivals, Loss Of ‘Friends,’ ‘The Office’

Netflix’s second-quarter results have historically been softer than in other periods. But Wednesday’s glaring miss of subscriber targets, and the complete flattening of U.S. subscriber trends in the period, sent the stock down sharply after hours and raised more questions about the competitive landscape.

The company’s quarterly letter to shareholders included several assertions that the company is well-positioned despite an onslaught of new rivals coming later this year and in 2020.

“Over the next 12 months, Disney, Apple, WarnerMedia, NBCU and others are joining Hulu, Amazon, BBC, Hotstar, YouTube, Netflix, and many others in offering streaming entertainment,” the letter noted. “The competition for winning consumers’ relaxation time is fierce for all companies and great for consumers. The innovation of streaming services is also drawing consumers to shift more and more from linear television to streaming entertainment.”

Even so, the company sees plenty of room for improvement, given that it accounts for 10% of total customers’ total TV time.

Losing popular shows like Friends and The Office to WarnerMedia and NBCUniversal, respectively, won’t harm the company’s long-term prospects, the letter added. The push toward originals and away from licensed fare has been under way “for many years,” Netflix’s letter said. Not having to pay hundreds of millions to retain off-net sitcoms also means the company can invest in more originals.

“We don’t have material viewing concentration as even our largest titles (that are watched by millions of members) account for only a low single digit percentage of streaming hours,” the letter said. “From what we’ve seen in the past when we drop strong catalog content (Starz and Epix with Sony, Disney, and Paramount films, or 2nd run series from Fox, for example) our members shift over to enjoying our other great content.”

The company also rebuffed the oft-speculated notion that it might consider implementing an ad-supported tier in order to shore up its finances.

“We, like HBO, are advertising free,” the company said. “That remains a deep part of our brand proposition; when you read speculation that we are moving into selling advertising, be confident that this is false. We believe we will have a more valuable business in the long term by staying out of competing for ad revenue and instead entirely focusing on competing for viewer satisfaction.”

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