Netflix (NASDAQ:NFLX) added 8.8 million subscribers in the fourth quarter, more than it was expecting about three months ago. But its net additions in the United States, 420,000, came in below its outlook.

In the company's fourth-quarter letter to shareholders, management was candid. New competitors like Disney's (NYSE:DIS) Disney+ and Apple's Apple TV+ are having an impact. "Our low membership growth in [the U.S. and Canada] is probably due to our recent price changes and to U.S. competitive launches."

The company also noted "slightly elevated churn levels" in the U.S., and expects that to continue into the first quarter -- the first full quarters for Disney+ and Apple TV+. What's more, the European rollout of Disney+ in late March could have an impact on Netflix in the second quarter. And with AT&T's HBO Max launching in May and Comcast's Peacock rolling out in April before launching broadly in July, competition could have an impact on Netflix's results in each of the next three quarters.

Exterior of Netflix's office in Los Angeles.

Image source: Netflix.

What's behind Netflix's outlook

Management expects first-quarter net additions of 7 million, below the Street's consensus estimate of 8.5 million and less than the 9.6 million subscribers the company added in the first quarter last year.

Netflix says the weaker outlook is, in part, related to the impact of competition, but that it's also still working through the price increases it announced early last year. Additionally, a more even content slate between the first and second quarters ought to produce comparatively stable growth throughout the first half of the year. (Last year's content slate heavily favored the first quarter.)

That said, there's reason to believe the impact of Disney+ will be more muted in the first quarter. The new streaming service had an unprecedented first two months, but investors should expect growth to slow this quarter. Disney+ already had very high brand awareness ahead of its launch, and its product is easily understood -- access to Disney's most well-known franchises. So naturally, many subscribers signed up quickly.

Without another major series launch like The Mandalorian for some time, Disney should see more muted subscriber growth in the first quarter. As a result, Netflix shouldn't see as big of an impact from Disney+ in the first quarter, especially considering the service doesn't expand into European markets until the end of March.

The most important metric is still improving

Last fall, Netflix CEO Reed Hastings said time is the most important metric to watch in the so-called streaming wars. In its most recent shareholder letter, Netflix provided lots of engagement data around new titles. Most importantly, it said, "Our viewing per membership grew both globally and in the U.S. on a year over year basis, consistent with recent quarters."

"And that's because our content is getting better. Our service is getting better," Hastings added during the company's fourth-quarter earnings call.

He and the rest of management also focused on the migration of time spent from linear television to streaming. "It primarily is going to take away from linear TV and takes away a little bit from us," CFO Spence Neumann said of Disney+. "That's all coming out of linear TV," Hastings said of Netflix's own engagement growth.

Growing the amount of time spent per member in the face of streaming competition will be a good indicator of the long-term health of Netflix. Churn might increase, gross additions might slump during quarters when big new services launch, and net additions would disappoint as a result, but strong engagement should indicate more subscribers will come back, or find their way to Netflix eventually. It also leaves the door open for another price increase, if subscribers find the service increasingly valuable.