January 15, 2019 / 8:22 PM / in 6 months

Breakingviews - Netflix reaps the dividends of its dominance

The Netflix logo is seen on their office in Hollywood, Los Angeles, California, U.S. July 16, 2018. REUTERS/Lucy Nicholson

NEW YORK (Reuters Breakingviews) - Nearly a decade ago, former Time Warner Chief Executive Jeff Bewkes derisively called Netflix the “Albanian army,” implying the video-streaming service would never take over the world. “The mouse that roared” is more like it.

Like the fictional European duchy in the 1959 film that declared war on the United States with a ragtag army, and won, Netflix outfoxed far-bigger rivals to achieve dominance. Now chief Reed Hastings is claiming his booty. The company on Tuesday bumped up the cost of its domestic subscriptions by as much as 18 percent. It’s the third hike in five years for its most popular plan, now priced at $12.99 a month.

Sure, the increase amounts to only $1 to $2 a month, but Netflix has stumbled in the past with such tactics. Nearly three years ago it missed its subscriber growth forecast after lamely trying to pass off a price hike as a move to “un-grandfather” longtime customers.

That Hastings feels comfortable to charge more just as competition is heating up says something. On Monday, Comcast’s NBC Universal announced plans for its direct-to-consumer offering. AT&T and Walt Disney are preparing to launch their own streaming services. Hulu, with its hydra-headed owners the Mouse House, Comcast and AT&T, announced it has more than 25 million subscribers in the United States – approaching half of Netflix’s count. But it’s losing money too, some $1.7 billion, Breakingviews estimates, based on owners’ filings.

Burning through an estimated $3 billion to $4 billion in 2018 is one reason Netflix wants to get more from its subscribers. Moody’s reckons the company will achieve breakeven cash flow by 2023. It is spending to ramp up its trove of original content like “Bird Box” as media giants like Disney withhold TV shows and movies from the service. Still, Netflix is profitable and has more than 135 million customers around the world, giving it an enormous advantage.

There is plenty of room for consumers to subscribe to a few video services. So far though, Netflix is top of mind. It will be the end of this year before traditional media players release competing streaming services. NBC, AT&T and Disney will be fighting for second or third place — if they place at all. Talk about Albanian armies.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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