Netflix Beats Subs Forecast, Scraps China Plans

Netflix posted better-than-expected earnings and subscriber numbers for the third quarter of 2016, while confirming that its China plans are on hold due to a "challenging regulatory environment".

The streaming giant said it added 3.57 million subscribers in the three months July-September, including 370,000 in the US and 3.2 million overseas. As usual, the company didn’t break down the new subscribers by territory. Total revenues hit $2.29bn and earnings of 12 cents per share, compared to Wall Street forecasts of $2.28bn.

When announcing second quarter results in July, Netflix had forecast adding 300,000 subscribers in the US and 2.3 million internationally. In the second quarter, the company had only added 1.5 million subscribers, compared to the two million it had predicted, reflecting the impact of its price increases in the US market.

The company attributed strong results in the third quarter to interest in its original content – in particular Stranger Things and Narcos. "The internet allows us to reach audiences all over the world and, with a growing base of over 86 million members, there’s a large appetite for entertainment and a diversity of tastes to satisfy," the company said in a letter to investors.

Netflix launched in 130 new territories at the beginning of this year, bringing the total number of countries the service is available in to 190, but China remains a notable black spot on the streaming giant’s map and is likely to stay that way for some time.

Speaking during the earnings call, Netflix CEO Reed Hastings said the company is no longer seeking to launch its services in China due to the "challenging regulatory environment". Rather than operate as a standalone service, the company plans to license content to local streaming platforms for what it expects to be "modest" fees.

The news is not surprising as China has only licensed a handful of domestic companies to operate streaming platforms and has recently clamped down on the online services of foreign companies. In April, Chinese authorities shut down OTT service DisneyLife, a joint venture between Disney and Alibaba, along with Apple’s iBooks and iMovies.

Chinese streaming giant LeEco recently said it would be collaborating with Netflix, but the tie-up is expected to involve Netflix shows streaming on LeEco’s platform in the US rather than in China. LeEco is expected to announce more details of its entry into the US market at an event tomorrow (October 19).