Photo: JD Lasica/Socialmedia.biz
In Netflix’s earnings release it tackles the topic of cord cutting in the cable industry.In short, Netflix says it’s not happening, and its customers actually see Netflix as a complement to cable, not a replacement.
Netflix calls itself “rerun TV,” but says, “we don’t plan to use that line in our next marketing campaign.”
Here’s the full statement:
Given what’s happened in the music and newspaper industries, producers of movies and TV shows naturally enough fear Internet services will hurt their existing business. That fear was heightened last year when, during some quarters, total MVPD households in the U.S. contracted for the first time in history, leading to extensive speculation over two possible drivers of “cord cutting”: (1) the rise of entertainment available via the Internet; and (2) the recession, specifically the decline in household formation, rampant foreclosures, and the rise in unemployment.
Since last year, online video use has more than doubled and the recession has receded somewhat. So, if online video use was driving cord cutting, the behaviour would have intensified. On the other hand, if it was the recession that was driving people to drop MVPD subscriptions, cord cutting would have moderated. In fact, not only did cord cutting slow, it became cord mending with total U.S. MVPD households growing in the latest estimates.
Simply put, the data shows that Netflix is a supplemental channel to MVPD. While Netflix is likely to show huge growth again this year, we think MVPD cord cutting will be minimal to non-existent. We hear some stories from customers who have Netflix and no MVPD service, but these are generally people who rely on free broadcast TV (which is now in HD) and supplement with Netflix, rather than switching from MVPD to online.
Recently, the CEO of an MVPD characterised Netflix as “rerun TV”. While we don’t plan to use that line in our next marketing campaign, he is fundamentally correct. Our focus for TV shows is on prior season TV and completeness of series, because this class of content enables us to licence content broadly and provide consumers a differentiated experience. Also, when we offer prior seasons of “Glee” or “Mad Men”, we think we grow the audience for current season on MVPD. We hope over time that HBO and Showtime will let us prove this proposition for them. We think more and more evidence that prior season on Netflix helps current season on MVPD will become apparent from our deals with Disney, Viacom, CBS, NBCU and others.
Looking at it from all of these angles, content owners that licence to Netflix make more money – now and in the future – than content owners who don’t licence to Netflix. A few media executives are still vocal about their fears of negative long-term impact on MVPD subscriptions from Netflix, but the evidence continues to pile up against their concerns. Our subscribers overwhelmingly enjoy both their Netflix and the variety of sports, current season TV shows, news and entertainment available through MVPDs.
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