It is a truth universally acknowledged that a successful tech company in possession of a great idea, well executed, must be wary of its own pride, as well as its naysayers’ prejudice. That’s the situation that Netflix currently faces: The top video-on-demand company, with tens of millions of paying subscribers, now facing a horde of up-and-coming competitors, is in danger of alienating those customers with its reaction to a market that is increasingly crowded.

Netflix’s latest quarterly results earned some bad press, mostly because subscriber growth was not as robust as forecast. Take a look at some of the coverage, starting with us:

• Subscription Insider: Netflix Stock Tanks After Q2 Earnings Report
• GBH Insights: Netflix delivers softer 2Q results; sub miss will be front and center
• The Street: Why Netflix’s Weak Subscriber Numbers Are Particularly Worrisome to Analysts
• Seeking Alpha: Why I Dumped The Rest Of My Netflix

Yes, Netflix’s most recent gains in quarterly subscribers did not reach projections, and the stock got hammered as a result. In a letter to shareholders, the company reported that “Membership growth was 5.2m, the same as Q2 last year, but lower than our 6.2m forecast. Earnings, margins, and revenue were all in-line with forecast and way up from prior year.”

So what is it? Bad news or a blip? Let’s look at the numbers.

FINANCIALS

Since Netflix is a public company, there is a lot of detail out there. Here is a look at quarterly revenue, showing the clean rising growth curve that has made the firm a Wall Street favorite.

(Source: Netflix, via Statista)

Net income has followed a similar curve … slightly more bumpy, but showing the same remarkable trend line:

(Source: Netflix, via Statista)

Well, with income and revenue at record quarterly highs, what’s the problem? Are there hidden inefficiencies? Take a look at average revenue per user (ARPU), a measure of effectiveness:

(Source: Bloomberg, Netflix, via Statista)

If anything, the company’s fundamentals are sound, especially for a media and tech giant, which has been appreciated on Wall Street. Take a look at how Netflix stock stands up against the other giants.

(Source: Variety)

Netflix is no Apple or Amazon, but it holds its own in its own cohort and dwarfs traditional media companies, as Cynthia Littleton of Variety notes:

• Netflix’s leap into the top echelon of the entertainment industry in just a few years has left Hollywood in a state of near bedlam. While the major studios were fighting with cable operators over carriage fees and retransmission consent deals, a company with roots well outside the Hollywood mainstream was unleashing the biggest innovations in the television-viewing experience. In the process, Netflix has also rewritten the rules of TV and movie dealmaking, talent paydays, TV scheduling, film release windows and marketing campaigns. It’s an extraordinary level of influence exerted on a mature industry dominated by long-established stalwarts.

Well, if the financials are fine and the company has thrown TV land for a loop, why the pessimism? Is this failure to meet its subscriber growth forecast a real crisis? Again, there is some data to consider.

SUBSCRIBERS

To start with, how many customers does Netflix have? The company has an answer, based on how many bank accounts it taps each month. Here are the actual numbers, by quarter, going back to 2011:

(Source: Netflix, via Statista)

That’s the global number. There is also data for America alone. Take the number of American subscribers, divide by the adult population of the United States, and you get the percent of U.S. residents who subscribe to Netflix. The answer is about 25%. But if you ask Americans if they subscribe to Netflix, the numbers are far larger:

(Source: Morning Consult, via Statista)

So although 25% of U.S. residents are subscribers, almost 60% SAY they are. Why is that? My guess is that Netflix counts a married couple with a single account as one, but each person in the couple say they are subscribers. Add in the same attitude for multi-generational families sharing accounts, say, and add in a few people who do not subscribe but who say they do, for one reason or another, and you get there. Certainly the U.S. penetration is incredible, especially in this diverse media age.

But let’s consider the actual market of potential subscribers, excluding those who have no interest in video on demand. Among those who already subscribe to a service, Netflix stands out:

(Source: Statista)

Another poll of video on demand (VOD) customers asked people from all over the world if they were Netflix subscribers:

(Source: eMarketer, via Statista)

Maybe 75% of American VOD subscribers use Netflix, maybe 65%. It’s a bit nebulous depending on whether you are counting accounts, screens, or users. But it is clear from the data that Netflix is on the top of the heap in the United States, and doing fine around the world. Netflix is also doing well among all age demographics:

0)](Source: Forbes, via Statista)

In reality, the market is volatile, and small variations in customer acquisition do not seem at the present to be a major concern, especially in the face of Netflix’s current market power. That power, which used to derive from a wide variety of licensed content, has been replaced in emphasis and visibility lately by the company’s push to create original programming.

CONTENT

Netflix is on track to spend $13 billion to $14 billion on original programming this year. That compares to a reported $5 billion investment in original content from Amazon and $1 billion from Apple. Netflix’s huge investment is reflected in the sheer volume of new entertainment content the company is creating. Look at the trend lines:

1)](Source: IHS Markit, via Statista)

2)](Source: IHS Markit, via Statista)

This incredible investment is paying off in terms of driving customer engagement:

3)](Source: 451 Research, via Statista)

That data is a little hoary, but the trendline is clear: More and more Netflix customers are subscribing because they desire Netflix’s original programming. In fact, young people consider watching Netflix as synonymous with watching TV:

4)](Source: Hub Entertainment Research, via Statista)

A remarkable 72% of young viewers think of Netflix when they think about watching TV! That’s what happens when you increasingly invest in new programming. Netflix and chill, indeed. Look at the amount of money Netflix devotes per user to original content:

5)](Source: Bloomberg and Netflix, via Statista)

Investment per subscriber is increasing even as the number of subscribers booms. This expensive strategy is paying off. Here’s the recognition that Netflix has gotten for its efforts to produce quality programming:

6)](Source: Business Insider, via Statista)

And the company’s original programming is a hit not only with critics, but with consumers, who see Netflix as the best value for their visual entertainment dollar:

7)](Source: Horowitz Research, via Statista)

THE PATH AHEAD

Netflix has transformed itself from a DVD-by-mail upstart into a streaming video trailblazer, and then into an original content production company. This adaptive approach has triumphed not because the powers-that-be in the executive suite have a crystal ball, but rather because they are enthusiastic about experimenting with new possibilities all the time. Here are a few of Netflix’s most recent initiatives:

Pricing: Netflix is known for relatively low prices, but it has fiddled with its formula, adding tiers and raising rates a buck here and a buck there. Most recently, it is trying a new top “Ultra” tier in Europe for HDR (high dynamic range) content. The company explained this experiment to CNET:

• “We continuously test new things at Netflix and these tests typically vary in length of time,” Smita Saran, a Netflix spokeswoman, said in an email. “In this case, we are testing slightly different price points and features to better understand how consumers value Netflix.”

The test includes access to fewer authorized screens for its lower-tier users, which, if broadly adopted, may alienate some customers.

Advertising: Techcrunch reports that Netflix is experimenting with promotions (read, ads) for other Netflix shows between episodes. Is this the start of advertising on the notably ad-free service? As Techcrunch points out, “consumer reaction to these promos – which consumers perceive as advertisements – has been fairly critical so far. Netflix is a paid subscription service, not an ad-supported one like Hulu with Limited Commercials. That means customers expect on-demand viewing with no ads.”

Apple Divorce: A key part of Netflix’s mobile strategy has been to offer its service to iPhone and iPad users through the Apple App Store. However, that arrangement includes stiff fees that Netflix pays to Apple for access – fees that start at 30%.Like other app developers, Netflix is seeking other ways to connect with mobile iOS users, but unlike some other developers, the company has the name recognition and market power to go it alone. According to Extreme Tech,

In 33 test markets (not including the US), the Netflix iOS app no longer lets you sign up for a subscription. Instead, new users are booted into the web browser to sign up on Netflix.com. Since this transaction happens outside the app, Netflix doesn’t have to give Apple its 30 percent cut (15 percent after the first year).

A look at the top iOS apps by revenue shows why this is a big deal:

8)](Source: Priori Data, via Statista)

Pundits say Apple’s potential for fighting back is limited because it’s in the middle of launching its own streaming service – direct action against Netflix could be seen as anti-competitive by regulators.

As an innovative company, Netflix has been hard for industry experts to evaluate, but that has not stopped them from trying. Netflix is one of the most ceaselessly analyzed, written about, and scrutinized companies in the technology sphere. Here are some recent takes on what Netflix SHOULD be trying.

According to Andrei Hagiu at Harvard Business Review, the best way for Netflix to keep growing is to become a media platform, offering more options for third parties to use the service to distribute their own content.

Annie Gaus at The Street suggests that “as competition looms, the media giant might need to make some radical changes.” Those changes should include more flexibility with pricing options as well as more differentiation according to included content, not just according to number of authorized screens.

But in my opinion, Elizabeth Winkler at The Wall Street Journal gets it best. The company’s core strength is its subscriber base, and strengthening that base is the surest growth strategy.

• What Netflix understands is that getting subscribers and, just as important, keeping them, is everything in the new media environment. The definition of success has shifted from how many eyeballs a channel can grab on a given night to how effectively a piece of content helps retain subscribers month after month.

Insider Take

Netflix is an innovative company that has already reinvented itself at least twice. Going forward, it risks offending its devoted subscribers (ads and price hikes, ugh). Meanwhile, companies with deeper pockets, including behemoths Amazon and Apple, are racing to win customers for their own rival offerings. But if Netflix keeps delighting its subscribers, its competitors will have a hard time catching up.