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Good news for Sky, Spark – no, really – in Netflix’ steamroller result

Shares surge 19%; $US6 billion content budget for 2017 unveiled. 

Wed, 19 Oct 2016

Netflix’ shares jumped 19.03% on the Nasdaq today, confirming a post-earnings pop in after-market trading yesterday and adding $US10 billion to its market cap.

The streaming video on-demand giant said it gained 3.56 million new subscribers in the three months ending September 30 – handily beating expectations. Almost all of the newcomers were outside the US.

It forecasts a net gain of 5.2 million paying subs for the December quarter, which will take its paid subscriber total to a shade over 88 million (or 92 million including trialists).

Profit increased from the year-ago quarter’s $US29 million to $US52 million (though, yet again, Netflix relied on its legacy DVD rental business into US, which chipped in $US56 million profit, to squeak into the black).

Revenue jumped from the year-ago quarter’s $US1.6 billion to $US2.2 billion.

On the face of things, these numbers seem to confirm Netflix’ ambition to be a global player about to steamroll local players like Sky TV’s Neon and Spark’s Lightbox.

But in fact there a nuance that’s quite encouraging for Sky and Spark.

Over the past year, Netflix has proved its plan to ramp up its own content is not just talk.

It’s famed “long tail” of content has got a lot shorter. It happily let Hulu outbid it for Seinfeld re-runs, for example. The exact number of titles in Netflix’ library is maddening difficult to gauge, but all pundits agree it’s got a lot smaller.

This jape seems to be working.

In his letter to shareholders that accompanies the quarterly earnings, Netflix chief executive Reed Hastings credits Netflix original content for the audience surge — in particular, Stranger Things and Narcos.

Netflix plans to boost its original content from 600 hours to 1000 hours next year, and to bump up its content budget to a staggering $US6 billion from $US5 billion this year (by contrast, Boston Consulting says the top spending US network, NBC, had a content budget of $US4.3 billion this year).

And it’s good news for Sky TV and Spark because Netflix is essentially positioning itself as a global TV channel pushing its own shows, and forgetting about aggregating and bidding for content made by others. It’s suddenly looking a lot more like a complement than a replacement to traditional broadcasters and other streamers.

Just as Netflix finally gets its act together against VPNs, there's suddenly a lot less reason to access Netflix US; the motherlode is no longer so large and (after some initial stumbling as Netflix staggered its global launch), all Netflix-original content is now available in every country where Netflix operates, and it's front-and-centre.

That doesn’t mean Sky and Spark can relax. Amazon (with Prime) and Hulu (collectively owned by various US TV networks and studios) are likely to push down under at some point too, and others will follow. 

In case you're wondering, Netflix Australia-New Zealand did not rate a mention in the shareholder letter, and no ANZ figures were broken out in the accompanying spreadsheets — although, more broadly, Mr Hastings did emphasise that international growth was ahead of projections.

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Good news for Sky, Spark – no, really – in Netflix’ steamroller result
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