Netflix's lackluster slate of original TV shows could have weighed down growth last quarter, but that is set to change
- Netflix shares took a hit Monday after the streaming giant missed badly on its subscriber growth targets for Q2.
- Netflix's slate of Q2 original TV shows could have played a factor.
- Returning shows weren't mega-hits, and the one that was, "13 Reasons Why," was lackluster in its second season.
- Q2 also lacked new shows that generated excitement.
On Monday, Netflix reported that it had badly missed its Q2 estimate for subscriber growth, and the stock took a hit, dropping 14% in the immediate aftermath. Netflix didn't provide much of an explanation for the miss in its letter to shareholders, but its underwhelming slate of original TV shows this quarter could have played a factor.
Netflix prides itself on its "originals," and is expected to spend nearly $8 billion this year on programming, as part of an effort to have 1,000 original shows and movies on the service by the end of the year. But the turnout in Q2 was lackluster.
There were plenty of returning original shows in Q2, such as "Arrested Development," "Luke Cage," "Glow," and "Unbreakable Kimmy Schmidt." But those don't generate the level of excitement or interest as mega-hits like "House of Cards" or "Stranger Things."
Netflix CEO Reed Hastings has said that excitement around its marquee titles attracts new subscribers.
"Very few people will join Netflix just because of a single title, but there is a tipping point," Hastings said last year. "You have one more title that has great excitement, that you are hearing a lot about, and that triggers you to finally sign up for Netflix."
The one wildly popular Netflix show that did return during the quarter, "13 Reasons Why," saw its new season panned by critics. The second season, which dropped in May, has a 26% critic score on review aggregator site Rotten Tomatoes, and a 54% audience score out of over 1,400 user ratings. This compares to the 81% critic score and 80% audience score of the first season. The show also generated more negative controversy than "great excitement," as some mental health experts and advocacy groups criticized the show's handling of serious topics, like suicide and assault.
Netflix didn't have a mega-hit like "Stranger Things" in the first quarter, but it did release many talked-about new original shows, like "Altered Carbon," "Queer Eye," "Everything Sucks!," "On My Block," and "The End of the F---ing World." Netflix's biggest new show in Q2, "Lost in Space," failed to get much buzz.
Compared to 2017, Netflix's second-quarter releases "lacked virtually all of the critically acclaimed and mass appeal launches," Wedbush analyst Michael Pachter, one of Netflix's biggest bears, said in a report last week.
But Q3 could be looking up.
Returning shows tend to boost subscriber growth more than new ones, Netflix CFO David Wells said last year. And in a report distributed Tuesday, Barclays analysts say Netflix's Q3 could benefit from hit shows dropping on the streaming service.
"Q3 should benefit from the shift of 'Orange is the New Black' and potentially 'House of Cards' from Q2 to Q3 while Q4 will need both 'Stanger Things' and 'The Crown' to return in order to maintain second derivative growth for the rest of the year," the report said.
"Orange is the New Black" returns July 27. "The Crown" and "House of Cards" are expected to return later this year, but "Stranger Things" may not come back until 2019.
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