Netflix will remain a worry next year also to giant media houses which are losing business to streaming service providers, of which the company is the leader. Time Warner boss Jeff Bewkes derided the video streaming company as the “Albanian army” once, but now the streaming firm has grown up to be worth $50 billion, which is around the same valuation as his company, says a report from The New York Times.
Netflix a threat to pay-TV
Consumers have begun to ditch expensive cable bills in favor of services like Netflix that are not only cheaper but ad-free as well. Such services – with a massive library of content — offer the convenience of watching shows anytime, anywhere with options like pausing and recording for a fixed monthly fee.
Only 82% of United States households will be pay-TV subscribers by 2020, according to SNL Kagan’s forecast. This is substantially down from a peak of 88% in 2011. This is the primary reason for the change of heart of Bewkes, Twenty-First Century Fox CEO James Murdoch, and Walt Disney’s boss, Bob Iger.
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
Murdoch recently said that Fox will be doing more business with Hulu — a Netflix rival jointly owned by Fox, Comcast and Disney. However, such decisions may lead to other problems. The Wall Street Journal stated that the deals struck with Hulu have resulted in a smaller cut of profit for the producers of the hit series Homeland on CBS-owned Showtime.
From hero to villain
Netflix was seen as a sort of hero by TV and movie producers as it became a new buyer of programming, thus adding to their revenues. However, it has now become a threat as its increasing popularity is slowly eroding pay-TV, which is more lucrative and a predictable source of revenue.
Despite the opposition from TV, the rate at which Netflix is growing suggests that in 2016, it will probably outspend its rival networks. However, it still lags the likes of HBO in terms of programming. Next year, Netflix might spend $2.5 billion in the U.S., compared with HBO’s $1.8 billion and Showtime’s $700 million, estimates Morgan Stanley.
At 9:40 a.m. Eastern, Netflix shares were up 0.12% at $116.60. Year to date, the stock is up by almost 139%, while in the last one month, it is down by almost 7%.