Don’t give up on Netflix just yet

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Headlines on July 17th seemed happy to twist the knife in on Netflix, and all because of a small bump on its – more usual – road of successive and steady successes.

Analysis of the numbers throw up some staggering information: In the UK, for example, where its citizens allegedly have “the best TV in the world” from the BBC and Sky, Netflix subs (15.4 million) exceed all of the combined pay-TV subscriptions services in Britain (Sky+BT+Amazon Prime+Virgin+Now TV and their combined 15.1 million).

One analyst (Josh Krichefski, CEO at MediaCom) spoke for many when he said: “Forecasting subscriber figures for a VoD service can be a hazy practice, especially as audiences become increasingly fragmented. People have far more choice for how they can view TV and films; from Now TV, Prime Video and even YouTube and Instagram’s new IGTV.”

Michael Nathanson, at Moffettnathanson, (very) cautiously backs Netflix, and realistically says: “Unlike Amazon, Google and Facebook, the moat around Netflix’s business model does not appear as deep as these other models (Amazon = Online Shopping, Google = Search, Facebook = Social) and we doubt that they can create and enjoy monopoly economics in content creation and internet distribution. The barrier to entry here, in part, is sourced by spending more money faster than others can. There is little sign that rivals are falling away. In fact, as Netflix noted, other larger, better funded entities are entering this space.”

Moffettnathanson stays ‘Neutral’ on Netflix, and even reduces its target price by $3 to $223.  Its reasons are that the researchers admit that making your own new content is going to be more expensive than renting hit shows from the established studios and broadcasters, and praises Netflix’s move into new appealing international markets. “Looking out over time, we would expect the next set of markets to require lower initial pricing and more localized content in order to drive penetration higher.”

However, analysts at investment bank Exane/BNPP take a far more upbeat tone, adding that a record number of Emmy nominations (112, and beating HBO), and 43 per cent y-o-y growth proves that Reed Hastings and his creative team are getting it right far more often than not.

“In our view,” says the bank, “Netflix success will likely continue to stimulate competition from tech giants (Apple and Amazon), the largest media groups (Disney Fox or ATT-Warner) to go direct through OTT. However, the majority of traditional TV players (esp. in Europe) will lack scale to compete, still largely depend on external content (that could go direct to consumer) and generate the vast majority from linear (relative to OTT) channels. We remain bearish on European broadcasters.”

Hastings told analysts: “I would say acquisition, which is up year-on-year but wasn’t up as much as we thought it was going to be… it was pretty broad across multiple markets…after 4 consecutive quarters of under forecasting the business, we over-forecasted the business. Paid net adds are up compared to year ago and forecast to be up a year-on-year over basis in Q3. And the fundamentals have never been stronger. Our viewing is setting year-over-year records, the shows that we have coming. So, we’re feeling very strong about the business.”


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