How Netflix May Finally Meet Its Waterloo

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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brooks7 7/6/2018 | 12:17:48 PM
Re: Contentment @Joe,

What they are doing is two-fold.  They are lowering the capability of lower cost accounts and increasing the capability of higher cost ones.  I expect this trend to continue.  For example, would a free, ad-supported Netflix garner more customers and revenue?  Maybe.  That is what I am driving at.  They can add banner ads onto their selection screens for lower cost accounts and create the Youtube Red version (completely ad-free) for higher cost account.

My point is there are a lot of ways for Netflix to make changes and change their revenue mix and improve revenue and profit.


Joe Stanganelli 7/6/2018 | 11:53:46 AM
Re: Contentment @brooks: True enough, although the premium plan appears to be limited to the standard Netflix type of upgrade -- allowing streaming to more devices and downloading to more mobile devices -- while also allowing for UHD viewing.
brooks7 7/5/2018 | 4:08:04 PM
Re: Contentment @Joe,

Netflix just offered its first premium package over the past week.


Joe Stanganelli 7/5/2018 | 2:51:18 PM
Re: Not so fast... > The younger generation is growing up with streaming as a way of life.

Yep. In psychology, this is known as "learned helplessness." :/
markrowan 7/5/2018 | 12:22:55 PM
Re: Not so fast... Possibly, but I'm not sure people want to buy DVDs going forward. Not all purchases are driven by cost alone. Convenience and viewing habits will dictate this to a certain extent. The younger generation is growing up with streaming as a way of life. Netflix may not be around forever but I doubt watching video via an internet connection is going to bow it's knee to DVD sales.
Joe Stanganelli 7/2/2018 | 5:13:08 PM
Re: Not so fast... @markrowan: Eventually, though, as people increasingly subscribe to Netflix primarily for the handful of shows they're devoted to, many of those people will realize that -- in the long run -- it's cheaper to just cancel the membership and shell out for the DVDs.
Joe Stanganelli 7/2/2018 | 5:11:28 PM
Re: Contentment @brooks7: The problem with that is that new subscribers will, for the most part, go for the cheapest package or one of the cheapest packages first -- and if their experience is substandard, or even standard, as compared to NFLX's commpetitors, then they may well leave.

Not to mention that, given the way NFLX currently runs the company, no doubt all then-contemporaneous subscribers at a certain level (if not all indeed) would, upon the transition, either (1) be defaulted to the ad package, or (2) be defaulted to a rate increase (along with a friendly marketing message warning them that if they downgrade back to their original lower price, they'll be subjected to ads). And that will mean a big loss in subscribers plus big ol' brand damage.
markrowan 6/28/2018 | 4:49:33 PM
Re: Not so fast... I see that as the main issue. People want Netflix because of the programming. Will it always be in demand? Remains to be seen. 

Most successful businesses go through cycles. Nothing lasts forever. Predicting it's eventual downfall is not exactly a hot take.
brooks7 6/28/2018 | 10:26:10 AM
Re: Contentment @Joe,

I suspect what will happen (see Youtube as an example of this) that the price of the service will remain what it is for a longer than normal time.  What will happen will be the introduction of ads for a free/lower cost model and then prices will shift.  Youtube Red is the same model.


bosco_pcs 6/27/2018 | 11:47:04 PM
Re: One Question on NFLX Subscribership Thanks Joe!

Perhaps you have missed my drift though. No doubt there is a volume discount but our focus here is about NFLX and not TMUS. One of the major metrics the professional financial analysts use to value NFLX is the subscription number. However, it occurs to me that this is fungable if TMUS users are getting it included in their phone bill.

Could this be some sort of a channel stuffing? And does it matter? Just curious
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