Netflix last week said that its subscribers streamed four billion hours’ worth of video over the past three months. How does that affect traditional television networks?
Analyst John Janedis of UBS estimates that the shift in viewing to streaming from ad-supported broadcast and cable had “a negative impact of about $500 million in total TV advertising during the quarter.”
That said, Janedis is increasing his estimates for ad revenue growth for some of the media companies he covers.
“Based on ad trends to start 2Q13, our sense is that consensus ad growth will increase post results over the next couple of weeks,” he said in a research note. “The next few weeks will be trickier to gauge the market due to the approaching upfront, but the tone appears to be good at this point, with budgets being registered earlier in some cases.”
His top stock picks are CBS and Time Warner.
Speaking of Netflix, analyst Richard Greenfield of BTIG Research put a buy recommendation on the stock for the first time.
“We believe the improving Netflix price/value relationship, along with high-quality, proprietary original programming will drive better than expected subscriber growth and moderate churn (the more a subscriber streams daily, the lower churn should fall),” he said in a research notes. “We also believe Netflix’s content spend is now sufficiently high, where they should gain significant domestic streaming leverage, accelerating in 2014 and beyond — with domestic revenue growth outpacing content spend.”
Greenfield noted that a few issues could cloud Netflix’s outlook:
- “Increased competition from TV Everywhere initiatives and over-the-top broadband streaming providers (such as Amazon Prime). Over the past couple of years, our biggest concern was a more aggressive Amazon with a standalone (non-prime) video streaming service,” Greenfield said. ”While Amazon has increased spending, video streaming is still part of Prime and the offering is still very much ‘evolving,’ in terms of its user interface and original programming. Yet, the more important issue is that we no longer believe it matters as much as we thought, as there appears to be plenty of room for more than one consumer streaming service.”
- “Failure of Netflix’s original programming initiative. While House of Cards appears to be a good start for Netflix in original programming, it has a long way to go before its original programming is seen in the same light as an HBO, Showtime or even an AMC or FX,” Greenfield said.
- “Difficulty in licensing third-party content,” he added. “While we have seen the entire industry turn into a willing content seller to Netflix, any change in content creators’ desire to license content to Netflix would be problematic, at least until Netflix has proved its ability to create a regular stream of successful original programming.”
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