My comment to latest, broken record House of Cards SA article ...
Two words. Pricing power. Not this year, maybe not next. But as they add quality original content, becoming like HBO, and add subs, expanding into new markets (they announced expansion set to resume 2H13), taking advantage of the undeniable trend away from linear TV, they will be able to ask for a slightly higher price, maybe a dollar or two by the time they add Disney/Star Wars content in 2016.
Try this, just for fun, plug in a dollar price hike in 2015, assume 2m avg sub adds per quarter over the next several years, and steady content costs which can be managed through their superior data analysis and not over-paying, and see what kind of numbers pop out.
Every bearish analysis I've seen assumes they can't possibly raise prices, ever, based on 2011 debacle, which Hastings has conceded was handled poorly. As TV everywhere takes over, offering better and better content at a bargain price compared to linear TV, pricing power increases.
I'm well into my 40s and have been debating cutting my cable cord for a couple years as the price steadily rises. The only things that have kept me connected are dvr, start over, on demand features, hbo go, etc. Sounds a lot like the TV everywhere philosophy doesn't it? I'm paying 10-20% more than several years ago, and so far TWC has kept me connected, but I'm not sure for how much longer.
In contrast, 20 something's don't even consider signing up for traditional cable or sat. packages.
Hastings has seen the future and he outlines it well in yesterday's letter to investors in which he says they will float debt for original content. At rock bottom interest rates, and the future bright for his model, why not?
And this is why the cost of premium television channels have increased so much every year (NOT!). It is pricing power and the competition that came along for HBO, such as Showtime, Bravo, Stars etc. did not have any impact on the business model ... same with just cable channels in general. They were originally paid for by subscribers then they have all turned to advertising to make ends meet, just like network TV.... and now it is 250 channels, with nothing to watch and every media company offers 20 different channels with a variety of programming for everyone.
I get that NFLX is on demand ... but it is not going to be on demand with no competition, low content costs and pricing power... 20 years from now when NFLX is projected to grow into its current PE.
Agree with this! Became subscriber to Netflix in 2000. Rarely have bought cable over those years - when I did, would just make me remember it makes no sense - $70 or so - for the couple shows I'd watch. 16 yo son has grown up with Netflix, not cable. We look at Hulu and Prime sometimes, but became clear a few years back, that the Netflix experience was vastly superior, due in part to their focus on customizing it for the individual.
Letter to Shareholders further conveys the fact this is a visionary company led by a forward thinker -- even to the simple but leading breakthrough act of Hasting's post on Facebook ... ending up changing SEC rules on communication.
Good comment. If you have access to quality local news, go ahead and cut the cord. The water is fine.
Netflix to its credit is aggressive. That means they make mistakes too. Hemlock is probably a bomb. I doubt new content will add many subs unless they hit a home run, which even for HBO and the networks is rare, but if it helps them maintain customers, that's enough.
I was surprised to hear Hastings say Hemlock Grove had more views first week than HoC after I read a couple bad reviews. That reminded me that younger demo doesn't give a rats #$%$ what old farts like me think! Hastings and Sarandos are programming for many different demos.