Netflix and the Content Streaming Revolution

BY: ELLIOT WEISS

The technological advancement of streaming TV shows and movies over the Internet has achieved wide acceptance among consumers. While many consumers continue to subscribe to a traditional broadcasting service such as Time Warner Cable or Optimum, industry members and financial analysts have predicted that the new trend of content streaming will eventually replace the traditional platform established by broadcasting networks.  However, despite the popularity and the considerable industry based attention that has been given to content streaming services, we have not reached the point where traditional broadcasting networks have become obsolete. One could make the argument that the broadcasting industry is enduring a transition period.

At the forefront of this transitional period sits the publically traded company Netflix, whom in 2011 “zoomed past Apple to become the nation’s leading supplier of movies streamed over the Internet.”[1. Paul Bond, Netflix Replaces Apple as Nation’s Top Internet- Movie Business, Hollywood Reporter (Jun. 1, 2012), http://www.hollywoodreporter.com/news/netflix-apple-internet-movie-332236.] While Netflix has been leading the new content streaming movement (along with companies like Hulu and Crackle), there has been an outpouring of concern over Netflix’s ability to sustain the charge. The concern stems predominantly from financial analysts and focuses on the short-term financials of the company.[2. Id.]  Despite that fact that “Netflix (Nasdaq: NFLX) has seen “shares increase 92.2% year to date as of the close of Wednesday, currently trading at $188.99 with 2.3 million public shares,”[3. The Street Wire, Netflix Reaches New 52-Week High, The Street (Feb. 14, 2013), http://www.thestreet.com/story/11842488/1/netflix-reaches-new-52-week-high-nflx.html?puc=yahoo&cm_ven=YAHOO.] analyst believe “that Netflix earnings growth will be subdued in the foreseeable future, in part due to international expansion costs.”[4. Georg Szalai, Analyst Upgrades Netflix Stock, Cites Disney Deal, Improving Fundamentals, Hollywood Reporter (Jan. 18, 2013), http://www.hollywoodreporter.com/news/analyst-upgrades-netflix-stock-disney-413579.]

In addition to expansion costs, Netflix has just recently unleashed its first wave of original content in the form of a new television series entitled House of Cards.[5. Dan Farber, Netflix Viewers Feast on House of Cards, CNet Blog (Feb. 12, 2013), http://news.cnet.com/8301-1023_3-57569060-93/netflix-viewers-feast-on-house-of-cards/.] It has been rumored that the price tag associated with the series has cost Netflix approximately $100 million to produce two thirteen episode seasons of a program that, based on Netflix’s subscription service model, will probably not be packaged as a DVD and distributed in retail stores to a fan base that can already stream the show through their Netflix subscription service.[6. Id.] It should be noted that House of Cards is but one of the few original series shows that Netflix plans to release in the near future. To finance their new wave of original content production, Netflix has announced that they intend to raise $400 million through corporate bond issuance, using approximately $225 million to pay down senior creditors in which the remaining funds may be attributed to investments and original programming.[7. See Georg Szalai, Analyst Upgrades Netflix Stock, Cites Disney Deal, Improving Fundamentals, Hollywood Reporter (Jan. 18, 2013), http://www.hollywoodreporter.com/news/analyst-upgrades-netflix-stock-disney-413579.]

Another concern for the company can be seen from the level of competition in the content streaming market. Amazon Prime (Amazon’s content streaming service subscription) has entered the fray and could potentially threaten Netflix’s market share. However, “while competing video services, including Amazon, Hulu and HBOGO, are often mentioned in the same breadth as Netflix, these services still trail Netflix by a wide margin.”[8. Georg Szalei, Analyst: Online Streaming Now Hurting Some Network Ratings, Hollywood Reporter (Jun. 4, 2012), http://www.hollywoodreporter.com/news/analyst-netflix-tv-ratings-332622.] Therefore, despite an increase in competition within the content streaming market, Netflix success and consumer viewing statistics has them well positioned to grow at a fast rate than their competition as the content streaming market continues to expand.

Leave a Reply

Your email address will not be published.