Netflix plans to increase its marketing and content spend in the final quarter of the financial year, despite appearing unperturbed by the upcoming launch of competitor platforms Disney+ and Apple TV+ in the same period.
Netflix shares surged 8% today (16 October) as it reported third quarter revenues of $5.24bn – a figure up 31% from Q3 2018’s $4.00bn. Operating margin was up on expectations at 18.7%, which the company partially attributed to a dip in content and marketing spend.
In a letter to investors, Netflix said these costs will be “more weighted” in the fourth quarter of 2019.
The ramp up will come as new competitors finally hit the market. The much-anticipated Apple TV+ and the Walt Disney Company’s Disney+ are both earmarked to launch in November.
In its earnings statement, the company noted: “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.”
Spence Neumann, Netflix’s group chief financial officer, admitted: “Inevitably there’s going to be some curiosity and trial of those competitive service offerings.”
However, Netflix appears ostensibly cool in the face of this competition. On a call with investors, co-founder, chairman and chief executive Reed Hastings, described the situation as “more of the same”.
“All of us are competing with linear TV, we’re all relatively small compared to linear TV,” he said. “We’re not really competing with each other fundamentally but competing with broadcast. I think it’s the same dynamic here.”
In total, the company spent $554m on marketing in the quarter ending 30 September. This was down slightly from the $603m it spent in Q2 – a time when it was preparing for the mammoth launch of Stranger Things 3.
An international play
This year looks to be the first the company will prioritize international marketing over its domestic campaigns.
International spend for the nine months ending 30 September is now at $1.1bn – up from $927m for the same period in 2018. Meanwhile US spend is posted at $683m – down from the $713m spent in the first three quarters of 2018.
International markets will now be critical the Netflix’s growth as analysts question whether it has hit a subscriber ceiling in its home market.
The company stated it is expanding its non-English language original offerings to bolster its subs goals outside of the US, and noted its goal is “to have the quality of our [originals] slate rival the ambition of its scope” across the board.
“With so many firms now looking to provide premium video content to consumers, it’s a great time to be a creator of content,” the investor statement read. “We don’t shy away from taking bold swings if we think the business impact will also be amazing. We don’t close every deal we chase, and we don’t chase every deal on the table.
“And while not all projects that we do pursue will work out, our large and growing subscription base helps enable us to try many approaches, while the size of our content budget (~$10bn on P&L spend and ~$15bn in cash content spend in 2019) insulates us from dependency on any single title.”