Report: Netflix U.S. Streaming Sub Base to Reach 45 Million by 201919 Apr, 2013 By: Erik Gruenwedel
Profit-driving disc rental business to have less than 5 million subscribers
Netflix is expected to add 13.7 million domestic streaming subscribers by 2019, while losing 3.3 million disc subs, according to a new report.
Research firm Trefis April 19 said Netflix’s content advantage — including high-profile originals, growing broadband penetration and increased usage on smartphones, tablets and other connected devices is resonating with consumers while increasing their desire for streaming video content.
It expects Netflix to add up to 1.2 million domestic streaming subs when the SVOD pioneer reports first-quarter results April 22.
“With Canada and Europe being developed markets, Netflix is positioned well to capture market share in these regions,” Trefis wrote in a note. “The broadband penetration is high, and average broadband speeds are good enough to foster growth in streaming services.”
Meanwhile, the research firm contends Netflix’s lucrative disc rental business will continue to shed subscribers opting to stream only. The disc rental segment, which ended 2012 with 8.2 million subs, generated 50% of Netflix operating profit.
Trefis argues that profit margin is illusionary with disc rentals declining, resulting in eroding economies of scale at distribution facilities and less favorable pricing from studios due to a shrinking base and reduced negotiating power.
“While revenue-sharing costs and postage costs are variable, other costs have large fixed components,” Trefis wrote. “With a smaller number of DVDs to handle …the fixed costs of content acquisition will be spread out over a smaller revenue base, implying that Netflix will lose operating leverage. Moreover, rising postage costs will also put some pressure on its margins.”
Meanwhile, Netflix recently began streaming all 13 episodes of original horror series, “Hemlock Grove” — it’s second original programming following “House of Cards” on Feb. 1.