Analyst: Netflix Facing ‘Uncertain’ Environment
23 Aug, 2011
By: Erik Gruenwedel

As online disc rental pioneer Netflix continues with an aggressive international expansion of its all-you-can-eat streaming service, it also is entering a prolonged period of difficult earnings, according to an analyst.

Eric Wold, research director with Merriman Capital in San Francisco, said Netflix shares have dropped 26% in value since he downgraded the stock to a “neutral” rating on July 6. The analyst now is discounting further 10% to 20% Netflix’s stock valuation for 2012.

Principal culprits include burgeoning costs involved rolling out streaming service in 43 Latin American countries, Mexico and the Caribbean, and the unknown impact of a 60% monthly price increase (to $15.98 from $9.99) to select domestic subscribers beginning Sept. 1.

Indeed, many analysts say the price increase could see upwards of 15% of Netflix’s 25 million subscribers jettison the service in favor of other home entertainment alternatives such as Amazon Prime, kiosks and video stores — many of which offer pricing options that rival Redbox and Blockbuster Express.

Netflix CEO Reed Hastings and CFO David Wells, in the company’s most recent analysts’ call, confirmed that short-term subscriber loss was inevitable in the third quarter as a result of the price increase. In addition, Netflix’s most recent content deal with Telemundo for 1,200 hours of repurposed Spanish-language TV programming underscored the prolific spending required to launch streaming service across such a large region.

Indeed, correspondence with Netflix personnel revealed the company is focusing much of its resources and attention on the launch.

“Although there is the potential for increased gross profits per domestic sub depending on how the price increase takes hold and the shift in subscription type, we believe this is likely to be offset by increased launch costs and initial losses internationally along with the potential for higher marketing spend (subscriber acquisition costs) domestically,” Wold wrote in an Aug. 23 note. “Given an increasingly uncertain environment (both competitively and operationally), we believe it is prudent to be more conservative with our valuation multiple assumptions.”

Study: 22% of Broadband Homes Use Netflix Streaming
24 Aug, 2011
By: Erik Gruenwedel

Cord-cutting — the buzz term downplayed by cable and satellite TV operators to describe subscribers who downsize or sever their monthly bill in favor of cheaper over-the-top services such as Netflix — is picking up momentum, according to a new report.

Dallas-based research firm Parks Associates, in a blog post, said 22% of respondents in a recent survey have, or will scale back their monthly cable bill, including 3.9 million people who said they watch Internet-based video entertainment.

These subscribers typically spend about $20 month on video services and watch an average of about 4.2 hours of Web-based video on their HDTV a week. Indeed, Comcast and Time Warner Cable reported a combined loss of 300,000 video subscribers during their most recent fiscal reports.

The research firm said 22% of broadband homes now use Netflix’s streaming service, with many others accessing content on YouTube. In fact, Parks recommended that set-top manufacturers incorporate a YouTube app in their devices similar to what TV manufacturers are doing.

Park noted that nearly 50% of all flat-panel TVs sold in 2011 will be Internet-connectable and about two-thirds of U.S. broadband households will have a video game console connected to the Internet. Consumer sales of Internet-connectable TV devices will go to nearly 350 million units worldwide by 2015.

Meanwhile, the firm said efforts by media companies and cable operators to retain subscribers through TV Everywhere platforms will be ineffective going forward.

Specifically, Parks said just 11% of subs, or 6.5 million households, would be willing to pay a premium of no more than $15 for ubiquitous access to content through TV Everywhere. It suggests TV Everywhere proponents entice subs through no-frills packages.