Netflix had its Q4 2013 investor event today where it looked over the numbers and talked about the future of the streaming service. They are betting heavily on original content but also see some potential competition from some upcoming services that might give them a run. The original content and some other plans are more interesting though. I sat down in the Google Hangout to see what Reed and company had to say about their continued growth and about some very interesting issues like net neutrality, 4K streaming and pre-roll ads.
More Original Content Planned
Netflix is putting a lot of energy and, presumably, money into original content. New seasons of House of Cards (set for Feb. 14th), Derek, Hemlock Grove, Orange is the New Black, Lilyhammer and the exclusive, final season of The Killing are all set to show up in 2014. Plus, after the initial 5-episode launch of their Dreamworks animated show Turbo F.A.S.T. they are set to pull the trigger on more as well as a new kids series from the animation studio. On top of that they are looking at an animated series for adults (as opposed to an adult animated series), BoJack Horseman and The Weinstein Co. is working on a Marco Polo-based show.
Whew, and that doesn't even look at the documentary side of their content. 2015 is equally exciting for original content with Sense8 from the Wachowskis and JMS (J. Michael Straczynski), Daredevil, the first show to hit in the Marvel deal and another show from the makers of Damages, Todd A. Kessler, Daniel Zelman and KZK (Glenn Kessler) which will feature Kyle Chandler. The series is about a family of adult siblings whose secrets and scars come to light with the return of their black-sheep brother.
$7.3 billion is wrapped up in original content and content licensing presently from the sounds of it. That also includes some exclusive premieres that are planned like the Breaking Bad spinoff Better Call Saul, which I hope is more than infomercials. Final episodes of Breaking Bad are set to hit North America on Feb. 24th.
Subscription Growth Up on Q4 2012
Overall they're doing quite well in subscriptions as opposed to the cable/satellite companies who are losing subs. Netflix finished 2013 strong with a net 2.33 million additions (14% more than Q4 2012) in the final quarter pushing them ever 33 million members and 31.7 million paid members, domestically. That generated $741M in revenue. On the International side, Canada broke even within two years but other than that they don't do break outs on International subscriptions. For the quarter, they added 1.74M new subs pushing them to almost 11M international users and 9.72M paid with revenue of $221M but still losing around $57M yet. Still, The $174M profit from domestic operations offset that.
We Work Great on All Screens; Mobile Views on Rise
During the Earnings Interview live stream Netflix's CEO Reed Hastings stated that the service works great on all screens but really a lot of the viewing is happening on big screens like connected TVs via various devices. Mobile is on the rise and a lot of people are seen to start on one device and end a show on a different one.
Olympics not a Threat
They say it will be a small impact on their overall signups and usage during Q1 2014 but they believe that House of Cards may offset that and so the forecast for the quarter took it all into account and there shouldn't really be anything surprising.
Subscription Pricing and Tiers
"Simplicity is at our core," was the motto for pricing at Netflix. But that may change this year as they start to look into multiple tiers for streaming accounts. Perhaps even in 1, 3 and 5-stream versions. Reed Hastings talked about changing their look at a single price and now trying to match what people want and ease of use as well as looking toward the future. The four-screen program is doing well and they feel that it's time to start branching out in price options which will offer consumers better options that suit them.
The $6.99 option, it's just testing right now for a single stream account. They are basically just looking at options but they have no plans to actually implement that. They are looking at good-better-best price tiering and existing customers would be "generously grandfathered" into whatever the new pricing system that may be implemented.
None of the tiering of prices will include putting some content on some accounts and not others mostly because that they have to pay "the whole nut" of exclusivity pricing because they need to outbid the other competitors in order to even get the content.
Essentially, what they are doing are testing extremes of pricing tiers based on various factors like concurrent streams, etc. This will then, over time, give them an idea of what offers the best options to the majority of their users. When asked about the difference of a dollar a month they made it clear that they want to more than double their paid members and that single monthly dollar could be a big difference to a vast amount of those subscribers. They summed it up with:
Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste.
Netflix and Pre-rolls?
No, at least not for the next couple years. They were built on and stand for a commercial-free experience. So do not worry about pre-rolls starting to get "crammed down consumers throats" as per Reed Hastings. Halleluiah!
Net Neutrality Impact
While there are some draconian scenarios possible, it's very unlikely and probably no major change in the near future. It would definitely fuel the fire for more regulation and probably degrade public confidence in them overall.
The most likely case, however, is that ISPs will avoid this consumer-unfriendly path of discrimination. ISPs are generally aware of the broad public support for net neutrality and don’t want to galvanize government action.
I guess what Netflix can keep doing to counteract any bad business tactics on the side of ISPs is simply to keep producing that monthly best experience chart they create.
Reed Hastings thinks that on the income side of an ISP, the faster plans with appropriate pricing could be big money makers and revenue drivers in the near future when people start streaming 4K movies or entire seasons of a show. Think about the massive amount of data that includes. Hastings stated that there's no "tidal wave coming in the next 18 months," simply because of the lack of market penetration and the lack of content available.
4K streams are encoded at 15.6Mbps, well within reach of a significant minority of our members, and the reach of capable 20Mbps broadband connections will continue to grow.
Netflix is obviously doing well and is good for online video in general. They're promoting original content creation, fighting on the side of net neutrality and pushing technology to its limits, all while maintaining an honest-to-goodness product full of value for the end users. Plus, they're still managing to churn out a modest profit. Who better to have as a poster child for online entertainment video right now?"
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