Growth5 Blog

Wednesday, June 2, 2010

Netflix Business Opportunity

Netflix CEO, Reed Hastings, posted the following strategy deck here. It is also embedded below.

The piece is titled, "Netflix Business Opportunity" and has some great info on where Netflix is currently vs. its competition and where it wants to be. Some highlights:
1. Netflix is focused on gaining and maintaining leadership in one segment: consumer-paid subscription for tv shows and movies.
2. In 2000 they had 290k subscribers, as of the end of 2009 they had 12.27 million.
3. They hit profitability in 2003 ($7mm) – in 2009 they made $116 million.
4. Between 2008 and 2009 they added just under 3mm subscribers. With improved streaming capabilities, they expect to add 5mm new subscribers in 2010.
5. Netflix is banking on the Internet getting bigger, faster and cheaper for "many decades," thus the focus on streaming technology. They aim for ubiquitous streaming: game consoles, Blu-ray, wifi-tvs, laptops, and eventually mobile.
6. Netflix realizes they are only a supplemental video service and sees Cable, Satellite & Telco ("CST") as their biggest competitor. "We offer only a fraction of the content of CST, and no sports, so almost no consumers leave CST for Netflix."
7. Sees Hulu and Redbox as a significant competitors as well.
8. The better ad targeting gets online, users may be willing to sit thru some ads for their content to remain free.
9. "It's pretty simple: if subscribers keep raving about Netflix, we will prosper."
If I were running Netflix, #8 would scare me the most (slide 33 in the presentation). Why? It's not like that model hasn't already been around for half a century with regards to tv, it's not hard to imagine. Will people put up with four ads in a movie? Probably. It certainly hasn't slowed viewers down for movie-like tv presentations (Fringe, 24, Mad Men, Breaking Bad, etc...).

So far, the major limitation has been bandwidth. Throw Google into the mix with their advanced ad targeting and their 100x faster fiber optic Internet connection speed project, there's a decent chance free ad-based content will thrive.

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