Netflix lost 130,000 US subscribers during the second quarter of this year

Netflix lost customers in the US in the second quarter of 2019, and did not add as many subscribers globally as the company had projected. This is the first time it has lost subscribers in the US since 2011 when the streaming platform became separate.

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Netflix CEO Hastings positive about outcome of streaming wars

Hastings took the loss of 130,000 US subscribers in stride as well as the fact that although the company added 2.7 million subscribers globally this was just half of what company executives had projected. The earning report also concerned investors who are now concerned that Netflix may not be able to deal effectively with upcoming competition from direct-to-consumer TV products such as will be offered by Disney, Warner Media, Apple and NBC Universal.

However Hastings sees the competition as a net positive overall for the industry saying: “It’s never been a better time for talent. They get to bid themselves off between us, Disney, Amazon, etc. But it’s not a zero-sum competition. I think everybody gets that. People will subscribe to multiple shows. It’s a great competition that helps build the industry, and the advantage of having something catchy like the ‘streaming wars’ is it draws more attention. And because of that, consumers shift more quickly from the linear TV to the streaming TV.”

Competition for original programming driving up prices

As licenced content becomes more scarce and costly, original content is in great demand also rising in cost quickly. As companies try to lock in large-scale deals for original content. Creators such as Ryan Murphy, Shonda Rhimes, and J.J. Abrams have signed deals in the nine figure range with streaming companies. There is also price raising competition for licensed content such as Friends and The Office. Both are leaving Netflix for WarnerMedia and NBC Universal' respective streaming platforms. The shows cost the two companies more than $400 million to have for several years.

Netflix proactive in response to what it saw coming

Years ago Netflix anticipated what was coming and how consumer tastes would develop. Ted Sarandos, Netflix's chief content officer said: “Over six years ago we got into original programming, betting that the licensed program would be more difficult to come by, and that maybe the sources of content to license from would be under different levels of strain. That has paid off. It’s been very important to the business to continue pushing down that road. More international, more global, more original film. We think we’re betting in all the areas of content that consumers love.”

Hastings sees YouTube as its big competitor

As the US market becomes saturated and Netflix concentrates on global expansion, it is You Tube that Hastings sees as the largest competitor of Netflix. Hastings says: “We do wonder in the fullness of time, ‘Can we be as big as YouTube? YouTube is seven times larger than us, roughly, in viewing hours, and a phenomenal service. Of course, it’s free. So the real question is, can we produce enough content that people are willing to pay for?”

Disney could also be a big threat, as it already owns Hulu. But it will take years to come close to the Netflix subscriber numbers. WarnerMedia and NBC Universal still have not said much about international growth.

Meanwhile, as Sarandos noted, Netflix series from Germany, Denmark and Sweden have 12 to 15 million global watchers. While investors may be a bit nervous about Netflix, Hastings claims the company is in an excellent spot saying: “In the beginning, there was Hulu, Amazon, YouTube, and Netflix, and we’ve all been growing at tremendous rates over the last 12 years. And we’re having a lot of new competitors enter over the next year. I think our position is excellent. If investors believe in internet television, then our position in that market is very strong.”

Previously published in the Digital Journal

Netflix testing cheap plan for mobile devices in India

Netflix is testing a new mobile-only subscription plan in India and other select countries that will cost only $3.63 a month only half the cost of Netflix's basic streaming plan in India which at $7.27 covers all devices as reported by Variety.

Netflix statement

Netflix said to Verge: “We are always looking for ways to make Netflix more enjoyable and accessible. We will be testing different options in select countries, where members can, for example, watch Netflix on their mobile device for a lower price and subscribe in shorter increments of time.” The last part of the statement suggests that Netflix may start to allow weekly or biweekly plans as well as monthly plans. Netflix would not say what other countries than India would share the test.

Netflix is also testing a replay function that has drawn negative reactions from a number of users so that it may turn out not to be a permanent feature or could be just an option.

Netflix has expressed interest in India

It makes sense that the test would be made in India a place where Netflix has expressed interest. Just last week Netflix product Vice President, Toddy Yellin gave a keynote address in Mumbai describing the countries plans to extend interactive TV shows with expanded content from India. Yelling pointed out the success that Netflix has already had with the India-based series Sacred Games about a police officer chasing a crime overlord. The series was popular not only in India but with audiences abroad.

A recent Verge article reporting on Yelllin's speech: "Netflix plans to make more interactive TV shows after Black Mirror: Bandersnatch, the Choose Your Own Adventure-style program, found international success, Netflix product VP Todd Yellin said in Mumbai at a keynote presentation on Tuesday, as reported by Variety. “It’s a huge hit here in India, it’s a huge hit around the world, and we realized, wow, interactive storytelling is something we want to bet more on,” he said. “We’re doubling down on that. So expect over the next year or two to see more interactive storytelling.”"

Previously published in Digital Journal

Netflix increases its monthly charges in the United States 13 to 18 percent

The giant streaming service Netflix is raising prices substantially in the U.S. to meet increasing costs and help to manage its huge debt.

The U.S. increases

The increases of 13 to 18 percent are the largest increase since Netflix began its video streaming service 12 years ago.

The most popular plan will see the monthly charge go to $13 per month from the present $10. The plan offers high definition streaming on two different internet connected devices simultaneously. Even at the new price the Netflix plan remains a few dollars cheaper than that of the popular HBO which charges $15 per month.

In the past, Netflix offered a basic $8 a month streaming plan while it hiked rates on more comprehensive plans. This time it has raised the price of the basic plan as well to $9 per month. A premium plan offering ultra-high definition will be raised from $14 per month to $16.

This is the fourth time that Netflix has increased its U.S. price with the last hike coming in late 2017. This is the first time that all 58 million U.S. subscribers, the number reported by the company last September, will face an increase.

The higher prices will be charged to all new subscribers and will hit existing customers within the next three months. Customers in 40 Latin American countries billed in U.S. currency will also be affected with the exception of key markets Mexico and Brazil. Netflix had almost 79 million subscribers outside of the US in September. More than in the U.S. itself.

Netflix investing large amounts in films and original shows

Netflix has made a huge investment in original shows and films. As a result it has assumed a large debt. Presumably Netflix is trying to compete with rivals such as Amazon, Disney and AT&T.

The company had a number of hits with its original material during the last five years. These have included: "House of Cards", Orange is the New Black, "Stranger Things", "The Crown" and the recent film the "Bird Box" On the basis of these, the company believes it can gradually raise its prices. The company said in a statement: "We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience."

Netflix spent about $4 billion last year and expects to spend about the same this year. Netflix has been borrowing large sums to pay for the expenses of programming. It raised $2 billion in an October bond offering even though it already had $12 billion in debt.

Stock price movements

Netflix is facing ever increasing competition by large firms. Coupled with the company's huge debt, this has led some investors to question whether the company can sustain its leading position in the streaming video area. The price of the stock has dropped significantly from a high of $423.21 last June. However, the recent price rise was received favorably by investors who no doubt believe that the increases wont significantly slow down subscriber growth. It is still charging competitive prices.

The company shares rose 6.5 percent on Tuesday in the early afternoon to $354.79.

Netflix to sell $1.5 billion in bonds

Netflix Inc. the huge US-based entertainment company provides streaming media, video on demand and now produces films and TV. The firm will sell $1.5 billion of bonds the company said in a statement

The company is seeking a yield that will be between 5.75 percent and 6 percent over 10.5 years according to sources who have knowledge of the matter but want to remain anonymous because the details are private. A Netflix representative did not immediately answer a call seeking comment.

Netflix

Netflix is an American entertainment company founded back in August of 1997 by Reed Hasting and Marc Randolph in Scott's Valley California. It is headquartered in Los Gatos California. In 2013 the company expanded into film and television production as well as on-line distribution. The company has offices in many countries.

In 2007 the company expanded into streaming media. It expanded into Canada in 2010. By 2016 its streaming service was operating in over 190 countries although not mainland China.

In 2012 it launched it own series Lilyhammer. It has since expanded the production of both film and television series. In 2016 alone the company released an estimated 126 original series beating any other network or cable channel.

As of April this year Netflix had 125 million subscribers globally. There were 56.71 million in the US.

Netflix has done well lately

As reported in a recent Digital Journal article, Netflix shares hit a record high just a few days ago as many analysts view it positively even though it has a large debt.

Last quarter Netflix added 7.41 million subscribers boosting its cash flow. This is the strongest start to a year since the company went public. Moody's has upgraded the company's credit rating as it is expected that growth will continue and cash flow turn positive.

Rating and use of bonds

S&P Global Ratings gave the bonds a B+ grade four steps below the investment grade or "junk". Free cash flow deficits will be greater than $3 billion in 2018 according to S&P caused by Netflix's heavy investments to add and retain subscribers.

Money from the bonds will be employed for general corporate purposes and could include content, production and development as well as potential acquisitions. A recent Digital Journal article reports that the company is planning to buy theaters to show its films.

John McClain a portfolio manager analyst at Diamond Hill Capital Management pointed out that with a maturity of 10.5 years the bonds are exposed to further rises in interest rates.

Netflix debt cushioned by huge stock market value

Netflix stock is worth a whopping $142 billion and it has been the best-performing stock on the S & P in 2018.

In October Netflix debt was 7.4 times Ebitda, earnings before interest taxes, depreciation and amortization, at the end of March this year, but Moodys expect this to drop comfortably to under 5 times by the end of 2020 as more subscribers are enrolled and revenue increases.

Previously published in Digital Journal

Netlfix shares hit record high after exceeding analysts' expectations and gaining subscribers

(April 18Shares of Netflix, the on-demand video streaming service, hit a record high on Tuesday April 17 subsequent to a report that for the fourth straight quarter the service added more subscribers.

Analysts raise their target price for Netflix (NFLX) as shares rise

The stock was up a significant 9.2 percent yesterday at $336.11. The subscriber increase was not the only factor boosting the stock price as at least 12 brokerages raised their price target. JP Morgan was the most bullish with a target of $385.

JP Morgan analyst Doug Anmuth wrote: “Netflix’s content strength and the global, secular shift to internet entertainment are driving subscriber upside.”

Anmuth also claimed: "Overall, NFLX continues to execute extremely well, emphasizing its case as the best global, secular growth story in tech...NFLX's content strength & the global, secular shift to Internet entertainment are driving subscriber upside & we believe providing mgmt w/greater confidence into what is normally a seasonally slower 2Q".

The market cap of Netflix reached almost to $146 billion while the stock price hit its intra-day high. Netflix shares have gained about 60 percent just so far this year. It is the top performer on the S & P 500 Index. The price rose another six percent in after hours trading.

Earnings and revenues for the first quarter were in line with analysts' expectations.

Netflix adding subscribers by the millions

In the U.S. alone, Netflix added 1.96 million subscribers in the first quarter. This compares with 1.42 million last year. It also showed even a greater increase in subscribers outside the U.S. with 5.46 million new subscribers, compared with 1.96 million last year. Both these figures surpassed analysts' average estimates.

Mark Mahaney, RBC Capital Markets analysts wrote: “We believe the breadth of Netflix’s content offering is paying dramatic dividends in terms of subscriber adds and retention.”

Netflix even did better than it had predicted. The company told investors that it expected to add 1.45 million subscribers in the first quarter and another 4.9 million outside the U.S. Instead it added 1.96 million domestically and 5.46 million foreign subscriptions. The company now claims to have 125 million subscribers worldwide.

Netflix faces stiff competition

While Netflix is of now ahead of any of its peers, it faces stiff competition from large firms such as Hulu, Apple Inc and Amazon Inc's prime video. They too have been investing heavily to have more content leading to price increases. Amazon Prime raised the price of its Amazon Prime by two dollars a month in January. Netflix also raised its prices for some U.S. and European plans last fall.

Netflix will no longer get new Walt Disney movies starting in 2019. Disney is planning to launch its own streaming service.

However, Netflix benefits from a wide range of agreements with wireless carriers and internet service providers who bundle Netflix into their service offerings. In the U.S., companies such as T-Mobile, Verizon, Cablevision Comcast Corp, Cox Communications and others all offer Netflix subscriptions. In France, Netflix has a deal with SFR Altice and also with Proximus in Belgium.

Michael Graham, a Canaccord Genuity analyst, said: “While these offerings so far are most prevalent in mature markets, leading to a lower Netflix average selling price and also lower churn, partnerships could also become more important in emerging markets.”

A clear majority of 46 analysts that cover Netflix stocks had buy ratings; but a significant number have hold ratings, and a few even had sell or lower. 26 rated the stock a buy, 17 rated it a hold and just three rated it sell or lower.

Previously published in Digital Journal

More Americans are "cutting the cord" but many also are keeping their cable

In spite of the availability of many digital streaming services such as Hulu and Netflix, 85 percent of U.S. households have traditional cable TV. Yet, market analyst TDG Research predicts that by 2030 up to 40 percent of Americans will have cut the cord.

TDG Research or Diffusion Group was founded in 2004 and focuses on predicting the future of the "connected consumer". Another example of their research can be found here.

The recession and the rise of streaming services

TDG predicted a decline in subscriptions to traditional cable TV in 2010 after the recession. Many Americans were looking to cut expenses. At the same time, digital streaming services such as Hulu and Netflix offered cheap alternatives.

The TDG predictions proved correct with the number of U.S. households paying for cable dropping every year since 2012. TDG predicts if the trend continues over the next 13 years the number of U.S. households having cable will drop to 60 percent.

Is the future of TV as an app?

Joel Espellen, Senior Analyst at TDG notes: "TDG said early on that the future of TV was an app. Unfortunately, most incumbent multi-channel video providers weren't taking notes. The question is no longer if the future of TV is an app, but how quickly and economically incumbents can adapt to this truth and transition to an all-broadband app-based live multi-channel system."

While this may be true it is only in the very long run. After 13 years, the number of U.S. households having cable will still be at 60 percent if TDG predictions are correct. TDG's own research shows that if all those who have both a streaming service and cable TV were forced to chose only one service the majority would actually choose cable. Many households will no doubt have both streaming service plus the cable TV.

The report argues that now the Internet is a must have while cable is often a luxury add-on for Americans. The report notes that the number of broadband households is now greater than those that have pay-TV. However many may be adding the Internet while keeping their pay TV.

The generational divide

Cost is a major factor in cutting the cord and changing to streaming services. Two thirds of those who cut the cord or never had cable TV in the first place said that the cost was the main reason they do not use traditional cable TV.

However, there is a large generational gap between younger adults and other age groups especially those over 65.

61 percent of adults 18-29 said online streaming services were the primary way they watched TV. This was the only group in which a majority watched TV through streaming media. In every other age group a majority watched via cable TV or an antenna according to a recent Pew Research poll. Cable's significance increases within older age groups.

Overall, 59 percent of U.S. adults say cable connections are their primary means of watching TV. Only 28 percent cite streaming services while 9 percent say they use digital antennas.

My personal experience

I decided to cut the cord some time ago. I am in a minority of just five percent of those over 65 who use streaming media as my source for watching TV.

One disadvantage of streaming devices is that there are sometimes pauses to reload and it may take time to load. Interruptions may be quite common especially when downloading live broadcasts. In this respect, cable TV is quite superior. For those who have the money or are just happy with cable they may see no reason to cut the cord.

Previously published in Digital Journal