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Netflix: ‘News, but not sports’

Online entertainment service Netflix has suggested it may move into the news genre as it refines its content portfolio, but has discounted a move into sports.

The comments came during Netflix’s Q3 2015 Results Earnings Call. Ted Sarandos, Chief Content Officer, said that the service was definitely being more adventurous in terms of the genres it was going into. “We’re getting ready to launch Chelsea Handler’s talk show early next year, that’s our first move into talk. Kind of aimed at the same kind of thing, we have a weekly talk show, where most of our things have been very long shelf-like movies and television series. So I think it’s a very kind of similar migration or certainly exploration. And in sports, I think we’re in the same place. There is a lot of irrational bidders for sports. We’re not anxious to become another one,” he admitted.

According to Sarandos, Netflix is interested in being able to improve the viewing experience, whatever kind of content people are watching. “So I think in sports, sports on-demand is not as exciting as sports live, where I think everything else that we’re doing that kind of freeze the viewers from the linear schedule in ways that they enjoy and more enjoy the programming, then we could bring some value to that.”

Prompted by Reed Hastings, Founder and Chief Executive Officer, Sarandos suggested that the likelihood that Netflix would compete directly with VICE in the next two years was “probably high”.

Netflix’s Q3 2015 Results revealed that global membership grew 3.62 million to 69.17 million members compared to prior year growth of 3.02 million, and a forecast of 3.55 million. Operating income was $74 million, compared to prior year of $110 million and a forecast of $81 million.

While global growth was as we expected, Netflix’s forecast was high for the US and low for international. “We added 0.88 million new US members in the quarter compared to 0.98 million prior year and a forecast of 1.15 million,” said the company in a Letter to Shareholders, suggesting its over-forecast in the US for Q3 was as a result of slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards.

In terms of US net additions, through the first nine months of 2015, Netflix said it was slightly ahead of prior year, and expected to finish 2015 at about 2014 levels.

International net add growth totalled 2.74 million compared to 2.04 million in the prior year and a 2.40 million forecast. As indicated previously, Netflix advised that international contribution losses would grow sequentially in Q4 as we it launched Spain, Italy and Portugal. “We have announced our expansion to South Korea, Hong Kong, Taiwan and Singapore in early 2016. Our plan remains to run around break-even through 2016 and to deliver material profits thereafter,” it confirmed.

According to Paolo Pescatore, Director, Multiplay and Media at CCS Insight, the key takeaway from Netflix’s latest financial results is its slower US subscriber growth. “This is a result of the US competitive landscape intensifying and the arrival of new online video services such as Sling TV. In response to this, even content owners have launched their own direct to consumer services such as HBO with HBO Go and CBS with Showtime. These latest results reinforce that its future growth lies in overseas expansion. However, the principal obstacles will be the amount of investment needed to secure rights for each country and how quickly it can come profitable in each market. Regardless, we still believe that Netflix is a prime takeover target. All Web players are looking for a stronger presence in paid-for video, something Netflix has achieved with remarkable success – potential suitors include Apple, Alibaba and Google.”

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