With Netflix, Inc. (NASDAQ:NFLX), competition is a growing concern, particularly as companies like Amazon get their streaming video offerings up and running. However, the company has been striving to make it easier for consumers to access its service, and the latest effort is a new deal with Liberty Global, which was just announced on Wednesday.
Macquarie downgraded Netflix earlier this week, and one of the core arguments was competition. Specifically, the firm’s analysts are worried about international markets where incumbents bundle their own streaming service in with their other offerings. However, the deal with Liberty should help boost the company in Europe by increasing its exposure there and making it easier for subscribers to access its service.
Netflix app on Liberty Global’s set-top boxes
The new partnership between Netflix and Liberty Global is a multi-year deal that integrates Netflix’s app into Liberty’s set-top boxes across the company’s large global footprint. Liberty has 29 million subscribers in 30 countries, so the deal is a huge boon for Netflix. It’s also beneficial to Liberty as it tries to manage the threat from streaming video on demand services such as Netflix.
Netflix already had a deal in place with Comcast for its X1 platform, which was signed just recently. The company also has partnered with DISH Network, TiVo and Virgin Media for integration into their set-top boxes as well.
Benefit from reduced churn rather than new subscribers
Nomura analyst Anthony DiClemente believes that the many set-top box integrations will help reduce Netflix’s churn rate rather than boost subscriber adds. He believes subscribers accessing the streaming service over a set-top box are less likely to cancel their subscription, mostly because it’s much easier to access the service. It prevents them from having to switch their TV input, thus boosting customer satisfaction.
He explained in his report dated September 14 that reducing churn is particularly important to investors because during the second quarter, the company said its churn rate increased due to media coverage about the un-grandfathering of older pricing plans. He also noted that competition within the over-the-top streaming market is increasing around the globe with Amazon Instant Video and Hulu Live starting to ramp their content investments.
The analyst also emphasized Liberty’s strength in Western Europe, which currently is in a major growth phase. Netflix’s push into Western Europe makes the Liberty deal an excellent opportunity. The pay-TV provider is also strong in Latin America, which is Netflix’s second-largest market. DiClemente also pointed out that the company is currently the only “scaled” provider of streaming video on demand that is available via set-top box integration. However, that could change because Comcast has expressed interest in partnering with the company’s competitors, and he expects other pay-TV providers to do the same.
Nomura continues to rate Netflix as a Buy with a $110 price target.
Still room for subscriber, pricing growth
RBC Capital analyst Steven Cahall and team are even more bullish on the company than DiClemente is, as they have a $130 price target on its stock. Unlike some analysts, they’re unconvinced that anything can slow down its subscriber growth. They also highlighted in a note this week that on average, Netflix viewers spend about two hours watching content per day. This stands in stark contrast to other numbers we’ve seen from other sources.
Cahall also believes the company might have more ability to raise subscription rates than anyone really realizes, citing the platform’s high engagement rate versus that of other media networks.
Netflix shares edged higher by less than 1% to $97.36 during regular trading hours on Thursday.
