by Paul Haramis
Netflix Logo – Courtesy of pr.netflix.com [1]
Corporate Headquarters [2]
100 Winchester Circle, Los Gatos, CA 95032
Phone: +1 (408) 540-3700
Key Executives [3]:
Reed Hastings, Founder and CEO
David Wells, Chief Financial Officer
Ted Sarandos, Chief Content Officer
Neil Hunt, Chief Product Officer
Greg Peters, Chief Streaming and Partnerships Officer
Tawni Cranz, Chief Talent Officer
History [4]:
Netflix didn’t offer streaming services until 2007 – Photo courtesy of qualitylogoproducts.com
Reed Hastings founded Netflix in 1997 with Marc Randolph [4]. The company was initially founded to offer online movie rentals. Customers would select a movie from the database and have it shipped directly to their home. In 1999, the company introduced monthly subscriptions, a format that the company still uses today. In 2002, Netflix first became available to the public on the NASDAQ. In 2007, Netflix began its streaming service, which has allowed the company to see exponential growth. Today there are more than 53 million members of Netflix, all of whom are scattered around the globe.
Financials [5]:
Courtesy of Google Finance
The third quarter was disappointing for Netflix as it fell short of its internal projections. They believed they would make around $1.41 billion dollars, but instead made around $1.22 billion dollars [4]. This is largely due to new subscriptions coming in at 980,000 as compared to the 1.3 million they projected. One of the biggest factors for the lower than anticipated new subscribers is believed to be the rise in price for a monthly subscription. The price rose from $7.99 a month to $8.99 a month. As part of their damage control, Netflix said that sometimes they over-predict their growth and sometimes they undersell it. This was to much avail as Netflix saw a 25% decrease in their stock after their third quarter earnings were released [6]. Some entrepreneurs saw this as an unbelievable opportunity. Netflix addressed fears that this was due to competition by saying, “Since our per-member viewing and retention in the US are as strong as ever, we don’t think increased competition from piracy, TV Everywhere, Amazon Prime Instant Video, Hulu, etc., is a major factor” [5]. This still didn’t prevent stock from dropping another 4% when HBO announced that HBO Go will be offered as a stand-alone streaming service and users won’t need an HBO cable subscription [5]. Netflix has been predicting this since 2011 and believes that since the content available on both is different, that both companies can continue to grow moving forward [5].
Original Content:
Netflix’s original content continues to be extremely strong and Netflix responded by creating additional new content as well as renewing current shows. In the third quarter, Netflix released an adult animated show “BoJack Horseman” as well as two new seasons of their hit shows “Orange is the New Black” and “The Killing” [5]. In addition, today Netflix announced that season 3 of the hit-show House of Cards, will be premiering on February 27, 2015 [7].
According to a Centris survey, 72% of domestic subscribers have watched some type of Netflix original programming [8]. This is up 15% from the first quarter of 2014 and is a great sign for Netflix that their subscribers are at least sampling their original programming. In another survey conducted for Netflix, 57% of subscribers stated that “original content was ‘extremely important,’ ‘quite important,’ or ‘moderately important” [8]. This information has pushed Netflix to churn out more original programming as they have a new show, “Marco Polo” set to release on December 12th. Netflix has reportedly spent $90 million dollars on the production of the show, which is expected to rival HBO’s hit show, “Game of Thrones” [9].
Netflix also recently announced that they will be creating an original series based on Lemony Snicket’s, “A Series of Unfortunate Events.” The books were international best sellers and the move allows Netflix to broaden its content reach with original programming [10].
Innovation
Netflix continues to innovate to make their product better and more expansive. This past quarter, Netflix has taken a number of big steps. The first was the completion of a four-year long project to switch over to HTML5 streaming [11]. The move should increase their streaming services as they will prevent users from having to download Microsoft Silverlight to stream Netflix. One of the most important tools for Netflix is their personal recommendations tool. This suggests new shows to users based on their previous shows and allows subscribers to keep watching new content. Netflix is continually testing new algorithms to improve this service and recently introduced a new feature that recommends shows based on characters from their original programming [12]. For example, subscribers can see programs recommended by Claire Underwood.
Photo courtesy of zap2it.com
This is a new way that Netflix believes it can keep pushing content on subscribers and keep their strong retention rate. The biggest innovation that Netflix made in the third quarter was their announcement of Crouching Tiger Hidden Dragon 2 straight to Netflix and select IMAX theaters [13]. This has several theater chains up in arms as they wonder about the potential future repercussions. Netflix also struck a deal with Adam Sandler and Happy Madison Productions to produce four movies released straight to Netflix [14]. It will be interesting to see if this causes a rise in subscriptions to view content that is exclusive to Netflix. It will also be interesting to see how many viewers the films get as Nielsen recently announced they will begin to track online viewing [15]. Netflix has refused to show viewership in the past as a way to alleviate pressure from its programming. It will be interesting to see how the new Nielsen ratings will effect the recent proclamation made by CEO, Reed Hastings this past weekend [16].
Global Expansion
The ultimate end goal for Netflix is to be a wide spread global company. In this past quarter, Netflix has made big strides in achieving that goal.
Photo courtesy of static.amigobulls.com
Earlier in the quarter, Netflix officially launched in six new European countries: France, Germany, Austria, Switzerland, Belgium, and Luxembourg [17]. This launch opened up Netflix to 63 million potential new households [17]. To accommodate the new European countries, many local and European content have been added to the database, as well as the addition of subtitles or dubbing European language over some current American content [17]. In the past two weeks, Netflix announced they will be launching in Australia and New Zealand in March 2015 [18]. The move pushes the number of countries and territories that Netflix is in over 50 [18]. Netflix will continue to grow that number as they expand globally.
Overview and Moving Forward:
Overall, despite failing to reach their projections, this has been an extremely successful quarter for Netflix as they continue to expand in both subscriptions and capabilities. It will be extremely exciting to tract their growth in the new year!
Sources:
[1] Netflix Logo, Netflix Media Center, Retrieved: November 29, 2014
[2] Company Overview, Netflix Media Center, Retrieved November 29, 2014
[3] Netflix: Officers & Directors, Officers & Directors, Retrieved: November 29, 2014
[4] Company Timeline, Netflix Media Center, Retrieved: November 29, 2014
[5] Letter to Shareholders, Quarterly Earnings, Retrieved: November 29, 2014
[6] Netflix Stock is Down 25% on This One Key Number in Earnings, MoneyMorning.com, Retrieved: November 29, 2014
[7] Netflix Announces ‘House of Cards’ Season 3 Premiere Date, Entertainment Weekly, Retrieved: December 1, 2014
[8] Netflix U.S. Viewership of Original Series Surges in Q3: Study, Variety, Retrieved: November 30, 2014
[9] Netflix is Creating One of the Most Expensive TV Shows in the World – Here’s Why It’s So Important, Business Insider, Retrieved: November 30, 2014
[10] Netflix to Adapt Lemony Snicket’s ‘A Series of Unfortunate Events’ into an Original Series, Netflix Media Center, Retrieved: November 30, 2014
[11] Netflix Goes HTML5 for Laptop Streaming, ZDNet, Retrieved: November 30, 2014
[12] Netflix Uses its Fictional Characters for Recommendations, Netflix Life, Retrieved: November 30, 2014
[13] Netflix Announces First Original Movie, Netflix Media Center, Retrieved: November 30, 2014
[14] O’Doyle Rules! Adam Sandler Heads to Netflix, Netflix Media Center, Retrieved: November 30, 2014
[15] Nielsen Plans to Track Netflix, Amazon — And It’s a Big Deal, Forbes, Retrieved: November 30, 2014
[16] Netflix CEO Reed Hastings says Cable TV Will be Dead by 2030, MSN, Retrieved: December 1, 2014
[17] Netflix Now in France, Germany, Austria, Switzerland, Belgium, and Luxembourg, Netflix Media Center, Retrieved: November 30, 2014
[18] Netflix, Inc. Heads to the Land Down Under, Nasdaq, Retrieved: November 30, 2014
