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Netflix Subs Expected to Pass HBO

21 Oct, 2013 By: Erik Gruenwedel

Netflix Oct. 21 is expected to surpass HBO in domestic subscribers when the subscription video-on-demand pioneer reports third-quarter fiscal results after the market’s close at 4 p.m. EST.

Netflix, which ended its most recent fiscal period with 28.62 million paying subscribers in the United States, is projected to have reached 30 million paying subs by the end of Sept. 30, according research firm Needham & Co. When adding in non-paying subs (trials and promotions), the tally exceeds 30 million. Netflix guided paying domestic Q3 subscribers at 30.9 million. It has another 7.75 million subs internationally.

HBO, which has long been a competitive benchmark for Netflix, has about 28.8 million paying domestic subscribers, according to SNL Kagan. The Time Warner-owned premium-TV service has more than 114 million subs globally.

“Consumers are probably going to come to see Netflix as being more valuable than other networks,” Janney Capital Markets analyst Tony Wible said in a note. He said the $7.99 monthly price “makes it very difficult for [premium channels] to be in the business.”

Indeed, Time Warner CEO Jeff Bewkes told an investor group last month he would not be adverse to selling HBO Go — the channel’s online access to repurposed and delayed premium content — as a standalone service to the 70 million U.S. cable households that do not subscribe to HBO.

“Where do you think the likely next subscriber is?” Bewkes asked at the Goldman Sachs Communacopia confab in New York. “Is it the 70 million homes that have bought 200 channels of stuff and they haven’t bought HBO? Or is it the 5 [million] or 10 million that didn’t buy either HBO or that? It’s pretty obvious: It’s the 70 million homes. We’re working more on that. If a way to get them is through a broadband offering, our distributors would be properly interested in that.”

Meanwhile, Netflix's top three executives — CEO Reed Hastings, CFO Todd Wells and CCO Ted Sarandos — have seen their stock portfolios expand exponentially. The trio cashed out a combined 384,418 stock options since the third quarter of 2011, with an aggregate value of roughly $75.6 million — a $62.3 million premium to their combined exercise prices of $13.2 million, according to SNL Kagan.

Indeed, from July 2011 through Oct. 15, 2013, Hastings generated a $38.5 million net return selling stock options, while Sarandos collected $16.9 million and Wells $6.9 million. The three also received new stock options during period worth $23.7 million, $19.8 million and $4.8 million, respectively.

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