Netflix (NASDAQ:NFLX) executives are no doubt eager to turn the calendar from August to September. The spectacle of the Olympics likely pushed subscriber growth numbers down around the world. Combined with elevated cancellations from its recent price increase, the major TV event had to have affected new member additions. Altogether, executives forecast adding just 2.3 million subscribers in the quarter that closes on Sept. 30 -- down sharply from the 3.3 million it added in the prior-year period.
Still, Netflix investors have plenty to look forward to over the coming month, including a flood of original and exclusive content with potential to lift the brand to new heights in the eyes of consumers.
Original content wins
The fireworks begin early in the month when Netflix rolls out the second season of Narcos, its drug-trafficking drama, on Sept. 2. That show represents a lot of what the company sees as its future. Narcos is being released globally to make full use of its rare worldwide content rights.
The show is also being offered in ultra-HD 4K definition, which requires an upgraded TV (and a more expensive membership plan) to enjoy. Netflix aims to be a leader in this medium, according to executives. "We strive to deliver the best video experience for our members and picture quality is an important element of this," CEO Reed Hastings told investors.
When the first season of Narcos was released, Hastings called it an instant global hit and said that the show was a key factor in the company's blockbuster growth in the fourth quarter of last year when Netflix added a record 5.6 million users. That will be an especially tough bar to pass this year, but it should help that Narcos is in its second season and can count on a large base of loyal viewers, in addition to the new converts Netflix attracts with marketing.
The Disney partnership kicks into high gear
September also marks the start of a massive content deal with Disney (NYSE:DIS) that has been three years in the making. The exclusive partnership had a modest beginning -- limited to just an extra season of a cancelled animated series in early 2014. Last year, it expanded to include hit Marvel content like Jessica Jones and Daredevil.
But all of that was just a buildup to this fall, when Netflix becomes the exclusive home of first-run theatrical releases across Disney's movie studios of Pixar, Disney Animation, Disney Pictures, Marvel, and LucasFilm.
When the partnership was first announced, Netflix had no way of knowing that Disney's 2016 movie slate, the first crop to qualify under the streaming agreement, is the entertainment giant's most successful film portfolio in over a decade. From Zootopia to Captain America: Civil War and Finding Dory to The Jungle Book, Disney's studios have dominated the box office this year and put the company in a position to lead all major movie shops for the first time since 2003.
We don't know the financial details behind the deal, except that it's safe to assume Disney is charging a big premium for exclusive access to this content just weeks after they complete their theatrical run. When he announced the partnership back in 2013, Disney CEO Bob Iger said Netflix "stepped up and paid the right price."
Shareholders are likely to see content costs spike as these movies begin rolling onto the service this quarter. Netflix hopes the brand boost (from association with exclusive Disney content) and the increased engagement (corresponding to lower cancellations) will make it well worth the extra spending. In any case, the deal should go a long way toward raising the service's perceived value to members.