Subscription Video Trends and Challenges [Part Five]

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October 11, 2017

SVOD Trends and Challenges [Five]: No More Frontiers

As widely reported, Netflix launched its service in an additional 130 countries in 2016. The streaming giant has run out of untapped markets.

No More Frontiers

Although prematurely attributed in the press, Netflix reached 100 million subscribers sometime this the summer. Currently, Netflix has 104 million subscribers, 4 million of which are for U.S. mail orders.

Perhaps overlooked in the press announcements was the fact that Netflix has already been available in most major pay television markets for years, including the UK, Germany, Scandinavia, Latin America, and a multitude of others.

Netflix has reached near-saturation levels in the United States. Unless the company can build a sizable new market of non-subscribers in the U.S., which is unlikely, future growth will solely depend on international adoption.

Projections that Netflix will reach 180 million international subscribers by 2020 by an analyst at PiperJaffray is not supported by the evidence, regardless of current trends.

However, never count out a company whose stock increased 22,000% since its IPO fifteen years ago in 2002.

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Sleeping With The Enemy

In a complete reversal of Netflix’s business practices, the company has formed major alliances with U.S. cable operators, also known as multichannel video programming distributors (MVPD).

Cable companies embracing Netflix, their former sworn enemy, is a sign that viewing habits are in flux. Cord-cutting increases from quarter to quarter and cable companies are desperate to slow the trend.

U.S. market leader Comcast started embedding Netflix into its Xfinity X1 set-top box in November 2016. Over half of Comcast’s 26 million subscribers use the Xfinity X1.

Charter Communications has become the latest U.S. cable company to integrate Netflix into its user interface. Charter is the third biggest MVPD is the U.S. behind AT&T and Comcast.

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Currently, over a dozen of the top 25 pay television providers have similar arrangements with Netflix.

These collaborations are an indication that Netflix has reached its maximum organic growth potential in the United States.

Several MVPDs are considering opening their platforms to Hulu, YouTube Red, and others.

New Boss, Same as the Old Boss

Future growth for third-party SVOD service providers, Netflix in particular, will only come with higher costs to both ends of the supply chain – content creation and distribution.

Ultimately, Netflix will always operate at a disadvantage since the major internet service providers and content aggregators are one in the same.

Greater consolidation in the distribution and transmission of filmed entertainment combined with greater fragmentation will create a bounty of la carte options all benefiting the same four media conglomerates.

AT&T, Comcast, and Spectrum own a near monopoly on the nation’s access to the internet and media.

By benefit of this virtue HBO and NBCUniversal, through Spectrum and Comcast can exert greater control in the future to hamper the growth of Netflix or other new players.

The proposed merger between Time Warner and AT&T flies in the face of Antitrust legislation.