Here’s why Netflix shares are off after reporting earnings

Shares of consumer video service Netflix are down sharply after the bell today, following the company’s Q3 earnings report.

Why is Netflix suddenly worth about 5% less than before? A mixed earnings report, a disappointing new paying customer number, and slightly slack guidance appear to be the answer.

The numbers

Heading into the third quarter, Netflix told investors that they should expect it to generate revenues of $6.33 billion, operating income of $1.25 billion, and net income of around $954 million, worth about $2.09 in earnings per share.

Today, Netflix reported $6.44 billion in revenue, operating income of $1.32 billion, along with $1.74 in per-share profit off of net income of $790 million.

Netflix bested its revenue goals, but fell short on profitability.

The company also managed to best analyst revenue expectations of $6.38 billion, while missing out on analyst per-share profit expectations of $2.13.

Adding to the pain, Netflix also missed expectations on new customer adds. In its Q2 earnings, Netflix said that it “forecast[ed] 2.5m paid net adds for Q3’20 vs. 6.8m in the prior year quarter,” because its “strong first half performance likely pulled forward some demand from the second half of the year.”

Today Netflix reported just 2.2 million customer adds, missing its own targets and sharply missing analyst expectations of around 3.3 million for the period (some analyst counts had an even higher guess).

Looking ahead, Netflix says that in Q4 it expects revenues of $6.57 billion, operating income of $885 million, $615 million in net income, earnings per share of $1.35, and 6.0 million new paid customers in the period. The street had been looking for $6.58 billion in top line, and just $0.94 in per-share profit, so it’s hard to parse which part of the forecast is driving more investor sentiment.

Regardless, today’s earnings report will not move Netflix’s share price too far from its recent, all-time highs. The company may take a ding from its profit miss, but nothing material.

Netflix user growth slows as production ramps up again

After the COVID-19 pandemic drove impressive subscriber growth earlier this year, Netflix’s numbers have come back down to Earth.

The streaming service added 15.77 million net new subscribers in the first quarter of the year, followed by 10.09 million in Q2. It only projected 2.5 million for Q3.

Today’s earnings report shows the company falling short of that already underwhelming goal, with only 2.2 million net additions, bringing its total subscriber base to 195 million. And it’s forecasting 6.0 million net additions in Q4, compared to 8.8 million in the same period last year.

“As we have highlighted in our recent investor letters, we believe our record first half paid net additions would result in slower growth in the back half of this year,” the company said in its letter to shareholders. “If we achieve our forecast, it will put us at a record 34m paid net adds for 2020, well above our prior annual high of 28.6m in 2018.”

The company also said that “retention remains healthy and engagement per member household was up solidly year over year.”

While the pandemic may have accelerated Netflix’s user growth, it also halted film production for safety reasons. That’s meant a slowing release schedule — though the delay is less noticeable for Netflix, as it had so many shows and movies in the pipeline.

With production resuming, the company said it’s actually completed principal photography on more than 50 productions since mid-March, with plans to do the same for 150 additional productions by the end of the year.

The fourth season of “Stranger Things​,” the second season of “The Witcher” and action film ​”Red Notice”​ (starring Dwayne Johnson, Gal Gadot and Ryan Reynolds) have all resumed production as well.

The announcement includes viewership numbers for a handful of shows and movies released in the last quarter: 43 million subscribers chose to watch the new season of “The Umbrella Academy,” 48 million chose to watch “Ratched,” 38 million chose to watch “The Social Dilemma” and 78 million chose to watch the Charlize Theron action movie “The Old Guard.” (Reminder: Netflix’s “chose to watch” metric refers to the number of subscribers who watched at least two minutes of a program.)

Update: Co-CEO Ted Sarandos discussed the current state of production during the investor interview, where he said the company is “nearly fully operational in most parts of the world.” He predicted that the service will be able to release its planned 2021 slate on schedule, with just a few delays and “minor exceptions.”

And although Netflix has also had to halt production on some shows due to positive COVID tests, Sarandos said that should be expected: “The art of it is how quickly and safely can you reopen.”

Disney+ UX teardown: Wins, fails and fixes

Disney announced earlier this month that it’s going all-in on streaming media.

As part of this new strategy, the company is undergoing a major reorganisation of its media and entertainment business that will focus on developing productions that will debut on its streaming and broadcast services.

This will include merging the company’s media businesses, ads and distribution, and Disney+ divisions so that they’ll now operate under the same business unit.

As TechCrunch’s Jonathan Shieber reports, Disney’s announcement follows a significant change to its release schedule to address new realities, including a collapsing theatrical release business; production issues; and the runaway success of its Disney+ streaming service — all caused or accelerated by the national failure to effectively address the COVID-19 pandemic.

So what better time than now to give Disney+ the Extra Crunch user experience teardown treatment. With the help of Built for Mars founder and UX expert Peter Ramsey, we highlight some of the things Disney+ gets right and things that should be fixed. They include zero distractions while signing up, “the power of percentages,” and the importance of designing for trackpad, mouse and touch outside of native applications.

Zero distractions while signing up

If the user is trying to complete a very specific task — such as making a payment — don’t distract them. They’re experiencing event-driven behaviour.

The win: Disney have almost entirely removed any kind of distractions when signing up. This includes the header and footer. They want you to stay on-task.

Image Credits: Disney+

Steve O’Hear: This seems like a very easy win but one we don’t see as often as perhaps we should. Am I right that most sign-up flows aren’t this distraction-free and why do you think that is?

Peter Ramsey: Yeah, it’s such an easy win. Sometimes you see sign-up screens that have Google Adwords on it, and I think, “You’re risking the user getting distracted and leaving for what, half a penny?” If I had to guess why more companies don’t utilise this technique, it’s probably just because they don’t want to deal with the technical hassle of hiding a bunch of elements.

The power of percentages

Only use percentages when it makes sense. 80% off sounds like a lot, but 3% doesn’t. Percentages can be a great way of making a discount seem larger than it actually is, but sometimes it can have the reverse effect. This is because people are generally bad at accurately estimating discounts. “What’s 13% off £78?”

The fail: If you sign up to a year of Disney+, then you’re offered 16% free. But 16% isn’t easy to calculate in your head — so people guess. And sometimes, their guesses may be less than the actual value of the discount.

The fix: In this instance, it would be far more compelling (and require less mental arithmetic), if it was marketed as “60 days free.” Sixty days is both easy to understand and easy to assign value to.

Image Credits: Disney+

Percentages may be harder to process or evaluate in isolation as an end user but they are easy to compare with each other i.e., we all know 25% off is better than 10% off. Aren’t you advocating obscuring the actual saving in favour of what sounds better on a case-by-case basis and therefore actually working against the end user? Of course I’m playing devils advocate a little here.

So, it’s actually a really complex dilemma, and there’s no “easy” answer — this would probably make a great dinner time conversation. Yes, if you’re offering two discounts, then a percentage may be the easiest way for people to compare them.

Stitcher’s podcasts arrive on Pandora with acquisition’s completion

SiriusXM today completed its previously announced $325 million acquisition of podcast platform Stitcher from E.W. Scripps, and has now launched Stitcher’s podcasts on Pandora across all tiers of the streaming service. The deal brings top Stitcher titles to Pandora, including “Freakonomics Radio,” “My Favorite Murder,” “SuperSoul Conversations from the Oprah Winfrey Network,” “Office Ladies,” “Conan O’Brien Needs a Friend,” “Literally! with Rob Lowe,” “LeVar Burton Reads” and “WTF with Marc Maron,” among others.

On Pandora, the podcasts will be indexed using the company’s proprietary Podcast Genome Project technology. This system leverages automated technology — like natural language processing, collaborative filtering and other machine learning approaches — then combines that with human curation to make personalized recommendations to podcast listeners on Pandora’s app.

The podcasts will also continue to be available in the Stitcher app in North America, the company says.

The Stitcher acquisition brought with it several key assets, including its own mobile listening app, which includes a premium tier of exclusives, and the Midroll Media network for podcast advertising. Stitcher also creates its own original programs and runs multiple content networks, via Earwolf.

That means SirusXM gained thousands of top podcasts with the deal’s closure. The company also now claims it has the “largest addressable audience in North America” across all categories of digital audio, including music, sports, talk and podcasts thanks to the combination of satellite radio service SiriusXM, streaming app Pandora and now Stitcher.

The company believes the deal will help it attract more creators to its platform, thanks to the enhanced production, marketing and distribution capabilities it offers, following the deal’s close. Advertisers, meanwhile, will be able to more precisely target podcasts for better ad efficiency, and will gain access to improved measurements, says SiriusXM.

In terms of Stitcher’s execs, CEO Erik Diehn will now report to Scott Greenstein, president and chief content officer of SiriusXM, who also oversees content at Pandora. Stitcher’s chief revenue officer, Sarah van Mosel, will report directly to John Trimble, chief advertising revenue officer of SiriusXM.

“We are deepening our position in podcasting, the fastest-growing sector in digital audio, and with completion of this transaction, our vision is taking shape,” said SiriusXM CEO Jim Meyer, in a statement about the deal’s completion. “With Stitcher and its varied assets, we are now a one-stop shop able to meet the needs of podcast creators, publishers and advertisers, while also providing listeners with access to great shows, series and programming.”

Despite the coronavirus pandemic, which disrupted many consumer trends and accelerated others, podcasting still remains one of the fast-growing digital audio industries. Podcast downloads returned to pre-COVID levels this summer, and Spotify reported that podcast consumption more than doubled in Q2, and nearly a quarter (21%) of its active users now listen to podcasts.

Stitcher was not SiriusXM’s first acquisition focused on podcasts or ad technologies. It also bought podcast management platform Simplecast this June, and before that, it acquired AdsWizz for $66.3 million to power Pandora’s advertising efforts.

Apple launches a U.S.-only music video station, Apple Music TV

Apple is expanding its investment in music with today’s launch of “Apple Music TV.” The new music video station offers a free, 24-hour livestream of popular music videos and other music content, including, exclusive video premieres, curated music video blocks, live shows, fan events, chart countdowns and guest appearances.

The service doesn’t have its own dedicated app, but is instead offered as a new feature within two of Apple’s existing entertainment apps. At launch, you can watch Apple Music TV from within the Browse tab of either the Apple Music app or the Apple TV app. (Accessible via apple.co/AppleMusicTV).

While Apple Music is a paid subscription service, Apple Music TV will be free to users in the U.S., the company says.

To kick off its launch, Apple Music TV today began with a countdown of the top 100 most-streamed songs ever across all of Apple Music, based on U.S. data.,

During brief tests of the new service, we found it to be a fairly basic (if uncensored) experience. The video stream only offered artist and song details at the beginning, instead of as the music played. It also didn’t take advantage of the integration with Apple Music to offer additional features to paying subscribers — like being able to favorite the song or add it to a playlist, for instance.

The stream would stop when the Apple Music app was closed, as it didn’t support background play.

Image Credits: Apple

There also weren’t any on-screen tools to share what you were watching via a social media post. You had to dig to find the “share” button under the three-dot, “more” menu. This would give you a link to tweet, but wouldn’t pre-fill it with text or hashtags, like the artist name or song.

While listening, you could stop the livestream and then return after a short pause. But after a bit, the stream would disconnect and the thumbnail of the paused music video reverts to the placeholder Apple Music TV image. When live, the text and icons will be shown in red. They revert to white when you’ve disconnected, as a visual cue.

Despite its simplicity, Apple Music TV gives Apple an immediate new home for its music-related original content, which over the years has included exclusive interviews, concert films, and more. It also provides Apple with another advantage with it goes to negotiate with artists for their premieres, as it introduces additional platform for reaching an artist’s fans — not only with the premiere itself, but by offering artists blocks of airtime leading up to their next debut that they can use to promote their releases.

The new station can also leverage content produced for the Apple Music 1 (formerly Beats 1) radio station, as it goes about running these promotions.

For example, on Thursday, October 22, Apple Music TV will promote the upcoming release of Bruce Springsteen’s “Letter to You” with music video blocks featuring his greatest videos, plus as exclusive interview with Zane Lowe, and a special livestream fan event.

Fridays, meanwhile, will focus on new music. This Friday, October 23, at 9 AM PT Apple Music TV will showcase two new exclusive video premieres – Joji’s “777” and SAINt JHN’s “Gorgeous.”

Apple Music TV’s biggest advantage, of course, is the fact that it’s freely accessible to millions of Apple device owners.

But it may struggle for traction as it lacks the features that make other livestream fan events or premieres engaging — like group chats or direct interactions with creators.

Instead, it’s more like a traditional TV broadcast — even MTV-like — compared with other online destinations where artists today connect with fans and promote their albums, like YouTube, VEVO, or more recently, Facebook, which just this year launched music videos.

Apple didn’t say if it planned to expand the new station outside the U.S.

Original Content podcast: It’s hard to resist the silliness of ‘Emily in Paris’

“Emily in Paris,” a new series on Netflix, has provoked skeptical responses from actual Parisians who are happy to point out the abundant clichés in its story of a young American (played by Lily Collins) who takes a last-minute transfer to a marketing agency in Paris.

Some fairly obvious culture clash moments ensue, along with equally implausible storylines where Emily’s extremely basic ideas about social media are treated as controversial and groundbreaking by her employer.

And yet, as we discuss on the latest episode of the Original Content podcast, we actually found the show delightful — or at the very least, highly watchable.

Yes, the show’s Paris is a fantasy, but it’s a fantasy that we’re happy to visit, particularly now. Yes, most of the show’s characters are basically cartoons, but they’re entertaining and fun cartoons. And at the end of the day, we’re all suckers for a slick, escapist romantic comedy, which is exactly what “Emily in Paris” delivers.

You can listen to our review in the player below, subscribe using Apple Podcasts or find us in your podcast player of choice. If you like the show, please let us know by leaving a review on Apple. You can also follow us on Twitter or send us feedback directly. (Or suggest shows and movies for us to review!)

And if you’d like to skip ahead, here’s how the episode breaks down:
0:00 Intro
0:31 “Emily in Paris” review
30:43 “Emily in Paris” spoiler discussion

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