Netflix remains ‘benchmark’ but rivals circling, say analysts

Netflix remains “the benchmark for its rivals” despite its poor second quarter financial results, according to analysts.

Paolo Pescatore at CCS Insight said this was the case and that the streaming giant traditionally struggles in Q2 because of seasonal trends. He added that he expected “the outlook to remain challenging owing to competition, the 2016 Olympic Games and further prices rises”.

However, Pescatore added: “We should not forget that Netflix is still the first truly global pay TV service – quite an accolade within a short period of time. This latest quarter may be a slight falter for Netflix, but it still sets the benchmark for its rivals.”

Overall, Netflix currently has 83.1 million subscribers, well ahead of the likes of Hulu and Amazon Prime in the US. It is also distributed far wider than those services, after its surprise 130-territory launch in January propelled it into a total of 188 overall.

A Juniper Research whitepaper, however, has suggested Netflix’s rivals may ultimately benefit from the streaming leader’s recent price increases, which came after the international expansion.

As evidence, Juniper referenced this week’s financial results, which saw it add 800,000 fewer subs than predicted and led to a share price nosedive.

“Whilst Netflix has expanded its coverage globally, the test will be whether it can meet its original content production costs, as well as provide quality content to consumers,” said research author Lauren Foye.

“It is believed that US rival Hulu is now close to offering the same amount of content as Netflix, and others are pushing new models such as Amazon’s monthly subscriptions to Prime video, and YouTube Red subscriptions for exclusive content.”

Analysis from IHS Technology’s senior analyst, Jonathan Broughton, claimed that Netflix’s “Q1-2 subscriber growth was always going to be bad as many ‘grandfather’ customers [were] faced with price hikes after enjoying many years of cheap streaming”.

Broughton noted Netflix’s new pricing structures will bring all subscribers in line with the US – US$7.99 per-month for SD access, US$9.99 for HD, and US$11.99 for Ultra HD – with rival services.

“Netflix falling short of expectations for new subscribers is indicative of the changing nature of the video streaming landscape,” claimed Haydn Jones, account managing director within IT solutions business Fujitsu’s media team.

“Consumers not only demand content when and where they want it, but also, as a group that is increasingly characterised by fee fatigue,  they don’t want to pay for it – or if they do, they want a minimal fee, so increasing prices was never going to go down well.”

“It is no longer enough to simply employ digital technologies and services, organisations such as Netflix simply must embrace the digital economy or risk being left behind by providers that meet the two-pronged desire for on-demand and free content.”

Mike Goodman, director of digital media strategies at analyst Strategy Analytics, meanwhile, predicted the international market would provide the Los Gatos-based streaming service with its greatest challenge.

“Netflix’s share has declined, and will continue to do so, as the SVOD market becomes saturated with competition, both domestically and internationally – there are over 20 SVOD services operating in North America and Western Europe.

“The international market is Netflix’ biggest concern around profitability. In Q1, the average US subscriber delivered a US$9 profit, however, internationally, the average subscriber is costing nearly US$3.50 more to acquire than the revenue they generate. Netflix will have to establish a tremendous slate of high quality global content before it can get overseas viewers to pay more for its content.”

Netflix’s share price was US$85.84 at press time, down 13% on the pre-result price, and from nearly US$100 on July 18.