Netflix doubled down on its original programming focus as it revealed impressive earnings and strong subscriber growth in Q3.
Total revenues of $5.25 billion were up 31 percent from the same period last year, the company stated in an investors’ letter on Wednesday. Meanwhile, net income was $665 million compared to $403 million in the prior-year quarter.
Netflix expects revenues to grow 30 percent to $5.4 billion in the final quarter of 2019. The news made shares jump more than eight percent.
"We did well during the first decade of streaming," the company wrote, addressing competitors flooding the market.
"We’ve been preparing for this new wave of competition for a long time. It’s why we started investing in originals in 2012 and expanded aggressively ever since -- across programming categories and countries with an ambition to share stories from the world to the world. In Q4, with The Crown, The Witcher, Klaus, The Irishman, The Two Popes, 6 Underground, and many other amazing titles launching, we’re ready to compete to earn consumers’ attention and viewing."
Netflix explained it competes broadly for entertainment time. This means there are many competitive activities to the service, from watching linear TV to playing video games. But it believes there is also a very large market opportunity.
Today, Netflix estimates it makes up less than 10 percent of TV screen time in the U.S. -- its most mature market -- and much less than that in mobile screen time.
Part of the letter read: "Many are focused on the ‘streaming wars,’ but we’ve been competing with streamers (Amazon, YouTube, Hulu) as well as linear TV for over a decade. The upcoming arrival of services like Disney+, Apple TV+, HBO Max, and Peacock is increased competition, but we are all small compared to linear TV.
"While the new competitors have some great titles (especially catalog titles), none have the variety, diversity and quality of new original programming that we are producing around the world.
"The launch of these new services will be noisy. There may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance. In the long-term, though, we expect we’ll continue to grow nicely given the strength of our service and the large market opportunity."
Netflix underlined its growth in Canada by way of example -- a location where Hulu does not exist. Subscriber numbers are increasing in Canada in line with the U.S., where Hulu is very successful at about 30 million paid memberships.
A question mark hangs over who will eventually reign supreme streaming service. But one thing is clear, according to Netflix: Linear TV will be replaced altogether in the near future.
The letter adds: "In our view, the likely outcome from the launch of these new services will be to accelerate the shift from linear TV to on demand consumption of entertainment. Just like the evolution from broadcast TV to cable, these once-in-a-generation changes are very large and open up big, new opportunities for many players.
"For example, for the first few decades of cable, networks like TBS, USA, ESPN, MTV and Discovery didn’t take much audience share from each other, but instead, they collectively took audience share from broadcast viewing.
"Content creation is booming around the world and everyone is vying for consumer attention. Over the next 10 years, many streaming services will grow viewing as streaming replaces linear TV. Our focus will continue to be on pleasing our members and growing engagement because that approach has served us well since 1997."