#15 M&E Research : The Netflix Star, shining bigger and brighter
Netflix has over $2.3 billion in debt, runs a negative free cash flow and trades at 300+ times earnings. But it was the top performer in 2015 S&P 500 and shareholders romance does not seems to be getting over anytime soon. Rising from a DVD delivery business to the largest Internet TV player on this planet, Netflix success is a rare example of genius, hard work, luck and strategy working right. Over the Top Video made astonishing gains in 2015 and the tread continues as consumers embrace Internet TV from companion to mainstream service. Netflix which streamed 42.5 billion hours in 2015 remains the poster boy of Online Video and has further consolidated its lead in its contribution to overall internet traffic. As online video gets more competitive, Netflix is moving ahead to drive its next phase of growth from launch in new territories, content richness and Technology smartness.
World is the audience
As of Jan 2016, Netflix has crossed 75 million members with over 17 million net additions coming in last one year. And if you thought the ship is too large to slow down, Netflix’s letter to shareholders gives a bold confidence to add another 6 million subscribers in Q1 alone. Just for the record, for the forth quarter of last year Netflix predicted to add 5.15 million subscribers but ended up adding a tad more at 5.59 million.
Charlie’s Angels, Armageddon, Star Trek V and several dozen titles are entering Netflix’s catalog in Feb 2016. While many titles will leave the basket, Netflix seems to have brilliant knack to keep the ball rolling. It is only last week that Netflix ( and Amazon) displayed it unprecedented buying appetite at Sundance by beating major studio and walking away with pricy titles in one of the biggest deals of the festival. At Sundance, Netflix scooped “Tallulah,” starring Ellen Page, “Under the Shadow,” a movie from war torn Tehran of the 80s and “The Fundamentals of Caring” with Paul Rudd. Netflix also got notorious for driving bidding to largest Sundance deal in its history, “The Birth of a Nation”, an 1831 slave uprising, for $17.5 million which finally went to Fox Searchlight . Netflix content catalog is not evenly available across regions but it International expansion is expected to reduce content costs per subscriber and deliver more value from its content catalog.
Original Programming and Original Feature films is gaining stronger foothold and Netflix unveiled five new original series in Q4 of 2015, including Marvel’s Jessica Jones and Master of None. The new series along with the existing favorites like Narcos, Sense8, Marvel’s Daredevil and Bloodline are claimed six of the Top 10 new TV shows of 2015 according to IMDB. In Q4 Netflix also premiered “Beasts of No Nation”, a journey into the world of African child soldiers from Cary Fukunaga. Netflix’s recent original documentaries, “What Happened, Miss Simone?” and “Winter on Fire”, also got nominated for Academy Awards.
At the time when Cloud media services were not acceptable, Netflix challenged and changed the industry by offering its services on Cloud. It runs on of the most complex, largest encoding and network engine to stream on demand content to its worldwide users. Last Quarter, Netflix introduced another first with complexity based encoding – encoding videos based on the type of actual content instead of adaptive bit rate technology which relies on bit rate reduction based on available bandwidth. The encoding gains significant importance in providing high resolution stream at lower bandwidth as the services become available in countries having lower average broadband speeds
What Lies Ahead
Netflix has newer failed to surprise its community of subscribers and shareholders. Below are 5 predictions on what may change at Netflix in next 12-18 months. While some of these may sound against the its foundations, the industry has seen many firsts in last few years.
- Subscription model. Increases monthly fees for its basic service by a dollar and a new ad-based subscription service at a much lower cost – e.g. $2.99 a month. The low cost service makes it a easy win in the largest markets where the Netflix does not enjoys the cost benefits against traditional services of cable/satellite as it does in US and Europe. E.g. India where a premium packages with over 500 channels costs cheaper than Netflix’s subscription.
- While Netflix has no interest in being bought, it is potential buyout target by major technology player eager to spread their wings as video service provider including Apple, Alibaba, Facebook and Google.
- Netflix holds a prominent place on Smart TVs, streaming media players, Game Consoles, Blu-ray players, Smart Phones, Tablets, PC and few STBs. It is time it becomes available as an offerings with emerging VMVPD services as part of slimmed down package or available as an add-on. Netflix as a channel which consumers can subscribe to.
- Gets content under Sports Genre. Streaming global rights for Live Sports could be a game changer.
- Bells the dragon and becomes truly worldwide service