Advanced Television

“Netflix should cut foreign expansion”

July 10, 2012

Netflix’s planned foray into another European country in the fourth quarter should be delayed or halted until the streaming pioneer returns to profitability in the US, says analysts B. Riley & Co. in Los Angeles.

Netflix has predicated much of its future growth (and profitability) on what it believes to be untapped international subscription VoD markets. That growth is largely underwritten by domestic subscribers – notably hybrid streaming/disc subs – a market segment now seen as dwindling, said analyst Eric Wold.

Riley & Co said Netflix management has admitted that only a third of lost subscribers have returned following the 2011 pricing/Qwikster debacle, indicating that new subscriber additions since then have been scarce. Wall Street scuttlebutt suggests Netflix will fall short of its guidance of 7 million net new subs in 2012.

The firm believes the competitive environment around Netflix will continue to worsen in coming years – largely from cable-based SVOD offerings, in addition to Amazon Prime and Hulu Plus.

Even with the high level of domestic content commitments during 2012 and beyond, it believes Netflix’s streaming-only and DVD-by-mail offerings has the ability to generate substantial pre-tax cash flow from its domestic operations – before the cloud of international start-ups and expansions negatively impacted financial results and valuations.

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