BNN speaks with David Garrity, CEO of GVA Research, about how the company is driving subscriber growth through original content and out-competing the likes of Amazon and Disney.
According to David, coming out of NFLX 3Q17 release today, important to bear in mind:
1) Subscriber Growth is Critical: NFLX consensus calls for 10.8mm subscriber additions in 2H17, but there are expectations that 13.9mm achievable;
2) Pricing Power Drives Profit Margins Which Drive Share Performance: NFLX is raising prices on some plans and it is unlikely consumers will “churn off” the service as much as during the “un-grandfathering” that happened in 2016 due to this year being a period of heavy content consumption. The more likely impact is to have some consumers just switching to the cheaper $7.99 basic plan;
3) Original Content Is Helping To Support Consumer Stickiness: The most important driver of incremental subscriber growth is NFLX spending on original content. Shows like “Outlander,” “Ozark,” “Narcos” & “Stranger Things” likely bolstered 3Q17 performance. Also, 2017 spending should lead to further value for Netflix customers in 2018; and
4) Meanwhile, Traditional Media Companies Are Raising Prices: With competition in the video market intensifying, we expect incumbent distributors to look to raise price (particularly on broadband where possible) and manage cost growth. Cost management is likely to include an aggressive stance on programming spend for networks that are less likely to create subscriber loss risk if not carried.