Netflix’s 2Q results demonstrate that original content is driving strong take-up (ahead of expectations) and with Netflix announcing an increase in original content investment (including investment into movie content for the first time), this raises the question – where might they go next and what will be the response from linear broadcasters?

Event – Netflix reports 2Q ahead of expectations: Netflix announced its 2Q results with subscriber growth ahead of expectations. Netflix reported 3.3m subscriber additions (0.9m US and 2.4m international) exceeding consensus (and guidance) estimates of 2.5m. Netflix ended 2Q with nearly 66m subscribers comprising 42.3m US subscribers and 23.3m international subscribers. Management indicated that better than expected subscriber growth was attributable to its investment in content. Is the US subs growth coming from international users accessing the service via VPN? Netflix guided for 1.1m US and 2.4m international subscriber additions for 3Q along with a plan to launch in the Japanese market with launches in Spain, Portugal and Italy scheduled for 4Q.

ANZ underpins subs growth: While Netflix doesn’t break out the individual markets, the management commentary did on a couple of occasions highlight that Australia and New Zealand were significant contributors to the subscriber growth in 2Q. This means that either Netflix is gaining market share or all SVOD operators are expanding at the same rate. We suspect it’s the former based on the industry discussions we’ve had to-date. With Netflix guiding to the same level of international subscriber growth for 3Q, and with only the Japanese launch planned for 3Q, this suggests strong confidence in the continued growth. Given, Netflix expects a slow start from its Japanese launch, this may suggest another significant contribution from Australia and NZ.