Wednesday, January 21, 2015

Netflix Delivers, What's Next

For those eager to watch a new programmer, disrupting the current channel line-up, and delivering new and syndicated content to the masses, look no further than Netflix.  It continues to drive viewership, both domestically and internationally, with an eye on further expansion and growth.  In its latest financials, it grew more than 4 million subscribers in the fourth quarter of 2014 and has a global subscription base of more than 57 million.  With additional countries to launch and content to create, consumers are actively engaging with their Netflix subscription. 

In fact, according to Variety, Netflix "accounted for 34.2% of all downstream usage during primetime hours, up from 31.6% in the second half of 2013, according to network-equipment vendor Sandvine. .... YouTube dropped to 13.2% of total peak downstream usage in March from 18.6% in the second half of 2013, according to the report.  Amazon Instant Video continues to gain, but still accounts for only 1.9% of downstream traffic vs. 1.6% last fall, while Hulu usage increased slightly from 1.4% to 1.7% share."  Further down that list is HBO GO at 1.24%.  Whether selling HBO GO outside a cable subscription will drive subscription and usage remains to be seen.

So how big can Netflix get? With about 30 million US subscribers and a cable universe that exceeds 100 million households, Netflix still has room for domestic growth along with its international push.  It drives its revenue as an ad free, subscription model, but one has to wonder when Netflix decides to enter the advertising game.  It may learn from networks like Bravo, AMC, and others that successfully transitioned from ad free to sponsorship to advertising.  Don't be surprised to see sponsorship or perhaps display or video advertising to appear on Netflix's home page. 

Given the market interest in continual revenue growth, a subscription only model might need to be revisited.  They could perhaps look at sites like Hulu and Spotify and others that offer a free, ad-supported version and a subscription version to drive faster growth.  And increasing subscriber fees will once again have to happen.  Increasing fees by 10 cents a month would improve current revenue an additional $68 million annually.  No wonder the stock market is humming over Netflix. 

No comments:

Post a Comment