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How Netflix May Finally Meet Its Waterloo

Alan Breznick
6/25/2018
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While Netflix may be sitting awfully pretty right now with 125 million subscribers throughout the world, some traditional pay-TV providers may end up having the last laugh after all.

So says Tony Gunnarsson, principal analyst of pay-TV and OTT video at Ovum Ltd. In a new TV market forecast released today, he predicts that Netflix Inc. (Nasdaq: NFLX) and other major standalone subscription video-on-demand (SVoD) services will see their growth rates subside over the next few years as newer OTT skinny-bundle packages of linear TV channels surge in popularity. In fact, he thinks Netflix will even start shedding subscribers by the early to middle 2020s as more and more TV viewers turn to subscription-based linear streaming video, or "SLIN," platforms like AT&T's DirecTV Now and Dish Network's Sling TV in the US. (See No Stopping Netflix.)

"Netflix today is the DVD of yesteryear," Gunnarsson said last week in an interview with Light Reading, which, like Ovum, is owned by Informa plc . "It's nonsense that it's not going to go into decline eventually … Netflix has reached the top ceiling of how big they can be."

Gunnarsson believes that SLIN services, which are frequently backed by such traditional pay-TV providers as AT&T Inc. (NYSE: T) and Dish Network LLC (Nasdaq: DISH), will overtake both traditional pay-TV providers and online SVoD services by 2022. While Netflix and other SVoD services will continue to steadily add subscribers for the next few years, their growth rates will be dwarfed by the skinny bundle services now popping up across the globe.

"We think the new linear services will trim OTT growth now," he said, while noting that it's still "early days" for the skinny bundle packages. "There is life still in linear TV and traditional platforms,"

In his new report, Gunnarsson projects that SLIN services will end up controlling 17% of the huge combined global pay-TV and OTT video market in 2022, up from 13% today, as cable, satellite and IPTV providers all continue to launch their own skinny-bundle services. In contrast, he sees cable TV's market-leading share slipping from 32% globally today to 24% by 2022 while Netflix, Amazon Video and other SVoD services all slightly boost their shares but fail to match SLIN's growth. (See Ovum: US Pay-TV Crashing but May Not Burn .)

"The future will not be dominated by SVOD and Netflix," he writes. "Just as on-demand became part of the mainstream TV offer, linear and live TV are becoming part of mainstream online offerings. We are entering a post-OTT era, where all types of services will be available on all types of network and device."


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Despite the vigorous push by Amazon.com Inc. (Nasdaq: AMZN) to duplicate Netflix's successful global expansion strategy, Gunnarsson doesn't think Amazon can come close to matching its Silicon Valley rival. While Amazon now ranks third in the world among SVoD services with 60 million subscribers, he notes that Amazon still has fewer than half as many video customers as Netflix and nowhere near the global reach of Netflix yet.

"If they [Amazon] were to replicate the Netflix model globally, they'd really have to up their game," he said. "It's going to take Amazon a long time to even try and catch up with Netflix on a world basis."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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mendyk
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mendyk,
User Rank: Light Sabre
6/26/2018 | 4:07:49 PM
Re: Contentment
How much of the content on Netflix does Netflix actually own or have exclusive distribution rights to? Alan said it a little more nicely (he is now a Canadian, after all), but in the long run, Netflix is screwed under its current model. It's a one-trick pony, and that one trick is subscriber growth. Once that hits the ceiling -- and it will -- watch what happens. Amazon has many many ponies in its stable. Its long-term success will not hinge on whether any of its "content" retains its value.
brooks7
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brooks7,
User Rank: Light Sabre
6/26/2018 | 3:57:14 PM
Re: Contentment
I would argue that the reason they still have subscribers is their content.  Other than that, they have little long-term value in the distribution business.  So, I would look at it the other way around...the VoD business helps justify the continued subscription to Netflix's content.

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
6/26/2018 | 10:50:47 AM
Contentment
Here's the issue: Are Netflix/Amazon/et al. producing "content" for its own sake, or are they doing it to cement their relationships with their customers? If you are spending a billion or more a year on content and not charging a premium for it, the answer seems clear.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
6/25/2018 | 11:56:52 PM
Re: Not so fast...
@macemoneta: Again, though, all this original content makes it little different than a cable-company bundle. Seems like Netflix's next natural pivot is to provide its content on other platforms, and act more like a network+studio.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
6/25/2018 | 11:55:13 PM
Sure, I see it.
I can't say I entirely disagree. As OTT providerslike Netflix have become more about original content, they're becoming just like the big bloated cable-company monoliths that they swiped all those customers from. And then, as a customer, you have the same problem -- to get the one or two shows you really like, you have to also get all the junk you have no interest in.

Netflix is just another bundle. I reattached the cord years ago -- and I'd bet others have and will, too.
macemoneta
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50%
macemoneta,
User Rank: Light Sabre
6/25/2018 | 2:03:22 PM
Re: Not so fast...
"But unless the quality of their content providers is up to snuff, Netflix will continue to grow and succeed."

 

Exactly. Netflix is pouring billions into original content - 500-1000 shows and movies over the next year from 15 production companies is what I read. A decade from now that will be a formidible offering for anyone to compete with. And they're doing it with a base subscriber account price of about $8/month. 
herman222
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50%
herman222,
User Rank: Light Beer
6/25/2018 | 12:03:48 PM
Not so fast...
It would be more accurate to compare traditional TV to DVDs. The growth in SLIN services is most likely a response to issues with traditional TV service. Whether it's their higher cost, lack of choice, abundance of unwanted channels, subscription flexibility or something else, consumers are seeking out options that better address their viewing habits without breaking their wallets.

SLIN growth will continue no doubt. The ease of starting and stopping service while untethered to long contracts certainly makes for a compelling argument to go with SLIN. 

But the linear model is certainly eroding in general. Appointment television is certainly less of a "thing" with younger viewers. Very few shows drive consumers to watch them when they are first available. Quality content is what wins, regardless of the platform. NetFlix's model of generating quality is what will further their growth and deter erosion, HBO has a similar reputation. So look at the value between the two services; you arguably get equal quality from both providers and NetFlix gives that to you for about 2/3 the price. 

So I believe your crystal ball to be flawed here. The old guard of Comcast, AT&T/DirecTV, Dish Network, Spectrum etc. will keep migrating to SLIN services as they are more cost effective to deploy and maintain in addition to being more economical to consumers. But unless the quality of their content providers is up to snuff, Netflix will continue to grow and succeed.
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