Netflix sped past subscriber estimates in its fourth-quarter 2013 report tonight, and likely beat out former pay TV king, HBO, capturing the subscription TV crown that cements leadership. With a business model that frees subscribers from the cable cord and trumps the TV schedule, Netflix showed that users favor flexibility and an ability to watch one show or binge on a whole series. And, subscribers want to select the viewing device, whether it’s a large screen TV, phone, tablet or desktop computer. With Netflix, subscribers can control when, where and what they watch, but with cable subscriptions, they can’t. (Note: I own Netflix shares.)
Netflix reported earnings per share of $.79 that beat the Street estimates of $.66 per share by 20%, propelling the stock in double digits in the aftermarkets. Fourth-quarter EPS jumped 50% compared with a year ago and proved Netflix’s investment in original content and international expansion paid off in spades. Revenues in the quarter were $1.2 Billion with net income of $.48.4 million.
In a carefully watched metric, Netflix announced 2.3 million net additional subscribers, above consensus estimates of 2.1 million. Domestic paid subscribers jumped to 32.7 million, likely topping HBO’s subscribers for the same time period, estimated at 30 million. Netflix management raised guidance for the first quarter 2104 and said they planned to continue to invest in original programming.
CEO Hastings Sees Clear Skies
With all the hoopla around cable consolidation and changes to the FCC’s rules on net neutrality, the stock has been on a roller coaster. Netflix CEO Reed Hastings was nonplussed. “We don’t see much cable industry consolidation per se — we see an instance of John Malone trying to consolidate Time Warner Cable into Charter Communications. And we don’t anticipate a material change in ISP pricing for our service,” despite the FCC’s legal setback that will give service providers more pricing flexibility.
Netflix does see a change in competitive stakes and believes the industry is headed toward a playoff between broadband franchises and over-the-top players. Hastings was unconcerned about Verizon’s purchase of Intel’s internet MVPD company and viewed it as a minor competitor.
If tech giants dive further into TV, notably long-rumored Apple, TV services could be organized as apps with focus on-demand rather than linear. If so, program discovery would be a critical problem to solve, and Silicon Valley is better positioned to crack it than New York.
Competitors Miss The Bus
Time Warner may be considering new strategies for HBO Go service, its mobile subscription service available through cable companies. Users have complained about difficulties accessing the app. And cable providers are confused about who owns the rights for signals outside the home.
When cable consultant Barbara Bellafiore, CEO, Bell Communications Group and I jointly tried to subscribe to HBO Go through Cablevision last week, after making the request on the website, calling the 800 number and emailing for an hour, our attempt was unsuccessful. By comparison, it took us three minutes to sign up for Netflix.
TV viewing is moving on-demand and becoming personalized, and those that don’t change will miss the bus.