How Long Can Netflix's Amazing Run Last?

The Atlantic

In the two years since CEO Reed Hastings groveled before customers about splitting the company's streaming and rental services, Netflix's U.S. subscriber base has grown by nearly 50 percent and its stock price has quintupled.

Zachary Seward at Quartz, who is consistently great on this topic, graphs the change, which shows Netflix blasting by HBO's estimated subscriber base. Netflix said it wanted to become HBO faster than HBO could become Netflix. Well, here ya go ...

It's not clear if more Netflix consumers are good or bad for traditional TV companies. Overall pay-TV subscribers (that's cable, satellite, and telco) haven't declined in the two years since Netflix added those 10 million new customers you see above. That suggests that Netflix might be more complementary to old-fashioned TV than some analysts initially thought. 

But (and this is the big point) more Netflix consumers are clearly good news for Netflix consumers. If Netflix can get one to two million more people to pay $7.99 for its service each quarter, it doesn't have to raise prices on existing customers. Indeed, Netflix hasn't changed its monthly fee ($7.99) for the last two years, which means streaming TV is actually getting cheaper each year in inflation-adjusted terms. That's amazing. Even more amazing is Hastings spending hundreds of millions of dollars (amortized over who-knows-how-long) on new contracts with Disney and exclusive rights to shows like "House of Cards" and "Orange Is the New Black." If it needs 1-2 million more customers each quarter to keep revenue and net income targets, then so far, so good ...

But is this sustainable? As Netflix gets cheaper, the entertainment catalog it's supplying is getting very expensive. In a way, Netflix is at a disadvantage here compared to Amazon Prime, since Wall Street simply doesn't care about Amazon profits, and it's not as lucky as the traditional TV world, where the richest channels (like ESPN) earn more per subscriber each year. Netflix is an amazing and astonishingly affordable service whose growing popularity makes it cheaper, in real terms, every year. That's a helluva deal, but who knows how long it can last.





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