Needham analysts on Wednesday gave an Underperform rating to Netflix Inc. (NASDAQ: NFLX) as they believe the demand for advertising-based video on demand (AVOD) service will far outweigh the demand for its subscription-based model.
Roku Is The Winning Aggregator
Analysts Laura Martin and Dan Medina of Needham studied the Nielsen Holdings PLC’s (NYSE: NLSN) Total Audience Report published earlier this month to conclude that Roku Inc. (NASDAQ: ROKU) is the “winning aggregator” in the U.S. of Subscription Video on Demand (SVOD) and AVOD services.
The analysts said that AVOD is poaching viewers from SVOD.
In over-the-top (OTT) capable households, streaming viewing makes up 20% of total viewership.
80% of the time is spent by consumers watching “linear TV,” especially sports. The analysts are of the view that as legal sports betting increases, so would the share of sports viewing.
Another factor that works against SVOD is cost. Cost is the most important factor for choosing an SVOD for 84% of the respondents note Martin and Medina.
The time spent viewing the service is of crucial importance, according to the analysts. 42% of respondents were cited as willing to cancel an SVOD service because they weren’t using it enough.
Needham’s Key Findings
According to Needham, 62% of American homes are subscribed to more than one paid video streaming.
However, only 10% are subscribed to 4 or more, which implies substitution instead of a willingness to pay for an additional service, according to the analysts.
Netflix is priced at $9-16/month, which is 30-100% higher than rivals Apple Inc.’s (NASDAQ: AAPL) Apple+, Comcast Corporation’s (NASDAQ: CMCSA) Peacock and Viacom CBS Inc.’s (NASDAQ: VIAC) CBS’s All Access.
The implications are subscription losses thanks to the cost sensitivity of customers according to the analysis.
47% of those polled by Nielsen said that they would subscribe to additional SVODs to expand the content available to them.
U.S. viewers had access to 646,152 unique program titles as of December 2019, which is 10% higher year-on-year.
Netflix shares traded 0.79% lower at $377 in the after-hours market on Wednesday. The shares had closed 1.69% higher at $380.01.
Roku shares traded 0.66% higher at $139.20 in the after-hours session on Wednesday. The shares had closed 0.94% higher, at $138.29.
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