VideoNotes #1 (10/25)

VideoNotes #1 (10/25)

Videonotes.TV = a place to record and share my notes on the most recent and important video/TV news. I’ll keep playing around with format — trying to be useful. Links go to major news source articles for more depth and the source of each link is noted.

STORIES

Mid-October 2016 has been very busy:

In the upcoming week, look for:

  • Details and debate on AT&T/Time Warner;
  • Amazon reports earnings on Thursday 10/27; Netflix included this nugget on global competiton in their 10/17 Q3 shareholder letter (Netflix investor relations download): “We presume that Amazon Prime Video will become as global as YouTube and Netflix this fall with the launch of the Jeremy Clarkson show”.

CASE DIVE: NETFLIX BY THE NUMBERS

  • Netflix reported better than expected earnings (WSJ) and subscriber growth on 10/17. NFLX stock on 10/25/2016 at $126+ is 59% above its 52-week low of $79.50, and within 5% of its 52-week high of $133.
  • NFLX Q3 2016 revenue was $2.29 billion; Net Income was $51.5 MM.
  • Netflix now has 86.7 MM total streaming Subscribers; this is up from 69.17 Subs one year ago (Q3 2015), and 53.06 MM Subs two years ago (Q3 2014).
  • Q3 2016 net subscriber gains were +370,000 in the US, and +3.2 MM International for a total of +3.57 MM; this is a 2x+ improvement over Q2 when NFLX added +1.7 MM net subs. For the first 3 quarters of 2016, Netflix has added +12 MM subs — the same as the first 3 quarters of 2015.
  • Netflix forecasts +5.2 MM net global subscriber adds for Q4 2016.
  • Netflix also announced that, for now, it would not directly compete in China (Quartz).
  • Netflix reports that it has now “un-grandfathered” 75% of its subscriber base into its current pricing structure (my bill, and maybe yours, recently went from $7.99/mo. to $9.99/mo.).
  • Netflix projects its 2017 content budget at $6 billion; it plans to release 1,000 hours of original programming in 2017 vs. 600 hours in 2016.
  • Netflix is now the #3 top grossing App overall on iOS — behind the games Mobile Strike and Clash Royale, and just ahead of HBO NOW.

PULLING BACK THE LENS

Presentation Slides:

  • MediaREDEF posted a presentation (redef) based on their original writing on Video and it’s future. Rich with data and insight and contains an original and thought provoking way of looking at the players and the industry.

Podcasts:

TRENDS and COMMENTARY

Cord Cutting + Ratings Decline: The one-two punch of falling ratings and cord cutting are hanging over the traditional TV industry like the Sword of Damocles. As the number of US households have grown over the past decade, pay TV penetration as a percentage hit a peak near 90% 2009 and has declined since to 83–84% (See Mediaredef presentation slides cited above).

US Pay TV households still, despite this decline, hover just below 100 MM according to Nielsen (Broadcasting & Cable). At today’s numbers, the traditional TV business is still at or near an overall revenue peak, however, the trend is toward fragmentation and downside. Ratings remain a larger threat than cord cutting. The question is how fast the erosion progresses and how and when it will impact industry revenue.

For now, we have winners and losers — much determined by demographics and hit programming. Live sports has been considered a safe zone, however low 2016 NFL ratings show that engagement declines have even reached the arena — a warning flag for networks with large advance sports licensing commitments.

The New York Times sums up TV’s uncertain future in the context of the AT&T-Time Warner mega-deal here: “AT&T-Time Warner Deal Is A Strike in the Dark” (NYT). The justification for the deal is that bigger and more diversified players are buffered against decline in some areas and positioned for growth in others — all depending on how the industry evolves.

On the video front, OTT digital options are deep and diverse and consumers of all ages are learning fast. The mainstream media is even educating consumers on cord cutting. On Oct. 12, the New York Times and Wirecutter offered consumers “The Definitive Guide to Cord-Cutting in 2016, Based on Your Habits.” (NYT). (separately, today, 10/24, The New York Times announced that it is buying Wirecutter for $30M+ (Recode)).

As in other businesses/verticals, native digital players are aggressive and well funded. Traditional players have the burden of playing at the top of their game in their incumbent leading spaces (which are far larger and more lucrative than digital), while crafting and executing a seamless and meaningful digital strategy.

This digital strategy cannot just be an awesome extension of the current business. It is critical that traditional players innovate in adjacent markets and even entirely new spaces. Players who are just optimizing for today and talking a good game about areas like their social media presence and advanced data capabilities — if they remain independent — will certainly shed value and become the Yahoo!’s of tomorrow.