tv everywhere1804v3_news 19/04/2016 11:22 Page 5
Analyst: Netflix largest
US Network by 2019
ccording to James Wang, analyst,
devices/gateways at ARK
Investment Management, TV
executives should feel paranoid about
the rise of Netflix. At the current
trajectory, ARK research forecasts
Netflix will become the largest US video
network by 2019. With Amazon Prime
Video, YouTube, Hulu and a host of
niche players also experiencing rapid
growth, streaming is set to become the
new TV, with a new set of winners and
losers.
In 2015, Netflix’s 43m US subscribers
viewed an average of two hours of video a day.
A
particularly well, predicting 62% penetration or
69m subscribers and 60% growth by 2020.
To fuel its global expansion, Netflix
anticipates spending $5 billion on content in
2016, or 50% more than in 2015. If such
content is successful in attracting and appealing
to viewers, it should drive both subscriber
growth and the engagement (viewing hours) of
existing subscribers. ARK expects that Netflix
will increase its spending on content by 22%
per year over the next five years, which ARK
believes could lead to 10% growth in viewing
time per subscriber per year as detailed in the
chart below. In this scenario, the average US
Netflix subscriber would watch three hours and
as cord cutters or cord shavers, and those who
have never subscribed to a traditional pay-TV
service, or cord nevers, are driving a secular
trend that ARK believes will erode TV
viewership more dramatically over the coming
years. Given this ‘cannibalistic scenario’, ARK
believes that Netflix could become the largest
US TV network as early as 2018.
If Netflix were to become the most watched
US ‘network’ by 2018-2019, what will the
ramifications be for the media industry?
While becoming the most watched ‘network’
would be significant, Netflix is using the US as a
launching pad to become the world’s largest
global subscription video service. With 175m
projected subscribers worldwide by 2020,
Netflix will gain incredible leverage and content
buying power. ARK believes that in 2020
Netflix could spend roughly $9 billion on
content, twice the outlay of Time Warner this
year. Already, TV networks are struggling to
Netflix anticipates spending $5 billion on content in 2016
At 31 billion hours of viewing per year in total,
Netflix already is larger than networks such as
A&E and Scripps, but still is behind major
networks such as Time Warner and Viacom.
Unlike linear TV networks that are constrained
by a legacy business model (fixed content
window, high margin structure, limited data,
etc.), Netflix continues to grow both domestic
subscribers as well as viewing time per
subscriber. Even if its growth were to moderate,
ARK believes that Netflix will surpass the
largest TV networks soon.
To estimate Netflix’s US subscriber growth,
ARK plotted its US broadband penetration and
applied a logistic regression or S Curve. The
logistic function effectively shows the three
stages of technological diffusion - rapid early
growth, steady growth and eventual saturation.
It reflects Netflix’s US subscriber growth
Molotov
launching July 11
Molotov, the new OTT
television distribution
platform created by French
media veterans Jean David
Blanc, Pierre Lescure and
Jean-Marc Denoual, will
launch this summer in July.
The service will be
available to users free of
charge and will be accessible
on all screens including
computers, smartphones,
tablets and connected TVs.
With both freely aired and
paid channels available via
the service, the users will
10 TV Everywhere
20 minutes a day by 2020 vs. two hours in
2015, a fairly conservative estimate given the
five hours of video, on average, that Americans
currently watch per day.
If Netflix’s subscribers grow to 69m and
their viewing time increases to three hours and
20 minutes a day, Netflix will deliver 83 billion
hours of video a year, which is more than any
US multichannel TV network (excluding
sports). If TV viewership were to remain
constant, which ARK believes would be a
conservative assumption, Netflix would eclipse
the largest TV network by 2019.
This scenario, however, may well be too
optimistic for TV. The migration of viewers