Netflix’s Lead Over Competitors Is Narrowing

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Netflix’s competitors in the video streaming space are stepping up their game, and it looks like some of their efforts could be working, according to a recent survey. The company’s stock is becoming one of the more polarizing choices with Wall Street being split wider and wider apart.

Netflix’s competition turning up the heat

UBS analyst Doug Mitchelson reiterated his Neutral rating and $92 price target for Netflix in a report dated September 25. He also released the results of a recent UBS Evidence Lab survey and three big questions it raises for the company.

The first is whether competition is intensifying, and the survey found signs that it is indeed. In fact, consumer satisfaction with Amazon and Hulu has now caught up to satisfaction with Netflix.

Pay-TV operators have also been making more content available for streaming and also improving their user interfaces. Mitchelson said that Netflix is indeed competing well—for now—but competition for wallet, attention and time share is only intensifying, and he advises investors to keep an eye on the competition.


Can Netflix raise prices further?

Another key question is whether the company can increase its prices any further and if so, how much. In its last earnings report, Netflix management said media attention to the un-grandfathering of some subscribers caused people to cancel because they thought their monthly subscription price was going up even though it wasn’t. However, it will take some time to see if this indeed was the reason for the higher churn rate in the last quarter.

According to Mitchelson, many subscribers have canceled their subscriptions but then returned at least once. Those who have been signed up for the last year have experienced this three times more often than those who have had subscriptions for at least the last four years.


The UBS survey found that the longer-tenured customers, who one would presume to be the most loyal, indicated that they are more sensitive to price increases than other subscribers. In fact, about half of them were willing to move to a lower service plan to keep their current price. Additionally, they were twice as likely to just cancel their subscriptions. As a result, Mitchelson posits that it’s difficult to determine just how much pricing power Netflix has.


Quality of original content called into question

The UBS analyst also noted that the company has had great success with original content, with the new show Stranger Things and returning show Narcos being standouts. He added that the audience of the company’s original content is growing as well, with about 40% of U.S. subscribers watching most or all of the episodes of these original shows, an increase from 31% last year.


However, not all of Netflix’s original content is a hit, as season two of Marco Polo is seeing less search interest than its first season did. Also The Get Down, which supposedly cost $120 million to produce, making it one of the most expensive TV shows ever, does not appear to be warranting its high price tag. Mitchelson also said that the shows Netflix has picked up to target certain demographics where it has been doing poorly are not hitting their marks.

The company is trying to appeal to older viewers and those in Middle America, but for example, The Ranch, which targeted the latter group, did not do well among the subscribers in the Midwest who took UBS’ survey.


Overall though, the analyst adds that the company has had a strong year for original content despite the meaningful deceleration in subscriber growth. As a result, he’s less confident now that the company will be able to beat the expectations of “very strong subscriber growth” for this year.

Netflix shares declined 1.44% to close at $94.56 on Monday.

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