Thursday, April 16, 2015

Netflix Growth, Now And Future

Netflix is currently on a roll, growing faster than estimated, and delivering a streaming video experience worldwide.  With a library of older TV content, a rotation of popular movies, and a commitment to original series, Netflix has created a strong value proposition, given a subscription fee of less than ten dollars a month.  Whether traditional TV sees Netflix as direct competition or a complement to their own line-up remains to be seen; still, new consumers are continuing to subscribe. 

As of the close of the second quarter, their total international base is almost 60 million subscribers with the U.S. alone counting for two thirds of that total. If cable households in the US are over 100 million, than Netflix still has a huge opportunity base to continue to grow.    The launch of HBO Now may be seen as a competitor, as is Amazon and Hulu Plus, but it is likely that consumers who desire the shows and movies from each of these choices don't view subscription as a zero sum game.  That is to say, these services can all grow together. 

The possible challenge to subscription only services is that at some point growth levels out and could possible shrink a bit.  At today's U.S. sub base of 40 plus million, raising rates just a dime adds $4 million dollars more in revenue every month and a dollar a month increase means $40 million more each month, or $480 million plus a year.  But rates can rise only so much so quickly before subscribers balked.  Cable TV is learning that painful lesson.  So how else does Netflix try to grow revenue?

With original programming, the possibility of syndicating series like House of Cards or Orange Is The New Black back to cable is a possibility although the value may be low given the ubiquitous nature of streaming.  Netflix certainly has gained lots of data on its users that could be sold as well.  Perhaps Netflix might consider adding a small amount of advertising into its welcome screen.  Banner ads while searching for content to watch could make sense without being too much of an intrusion to the subscription value.  And if it keeps subscriber fees down, even better.  Yes, their current one revenue stream model is working quite well, but I suspect that there must be some discussion on how to derive additional revenue opportunities for its existing base.