Netflix Not Sweating HBO, Reveals Some Viewership Data

/ Oct 15, 2014


The response to Netflix’s Q3 2014 earnings report hasn’t been great — at least initially. In total, the company added 3 million streaming subscribers during the quarter, slightly below its earlier projections. That, combined with HBO’s earlier announcement that it was going to launch some sort of standalone online video service in 2015, has caused Netflix’s stock to fall in after-hours trading.

In the company’s letter to shareholders, it took the time to respond to HBO’s big announcement: “It was inevitable and sensible that they would eventually offer their service as a standalone application,” said Netflix CEO Reed Hastings and CFO David Wells.

That said, Netflix isn’t worried. “Starting back in 2011, we started saying that HBO would be our primary long-term competitor, particularly for content. The competition will drive us both to be better,” the executives noted. This is because Netflix believes HBO, while competitive, won’t cannibalize its business. “Many people will subscribe to both Netflix and HBO since we have different shows, so we think it is likely we both prosper as consumers move to internet TV.”

In this way, Netflix expects to be another “premium pay-TV channel” — like HBO, Showtime, and Starz. (And those three don’t really eat into each other’s businesses.)

Other highlights from Netflix’s letter to shareholders and earnings call are below:

  • Hastings, during the investor call, said the subscriber estimates are “the midpoint,” and expects the company to be slightly below or slightly above that number in each quarter.
  • It’s no secret that Netflix makes its original content investments based on what people are watching on the streaming service. The company did it again when it picked up the Will Arnett-starring adult animated series “BoJack Horseman.” The show drew more viewers in its first few weeks than comparable TV shows like “Archer” and “Bob’s Burgers” did over a “comparable time period” on Netflix, the company said. “BoJack” will return for a second season next year.

  • Upon Netflix’s launch in both regions, “Orange Is the New Black” was the most-watched show in France and Germany, according to Netflix chief content officer Ted Sarandos on the investor call.
  • Did Netflix just provide some viewership data? The streaming service currently offers 75 kids series, with each show “delighting” more than 2 million viewers, the company said. More than a dozen of these shows entertain more than 5 million viewers each. Those are domestic numbers, Sarandos said.

  • On “Crouching Tiger, Hidden Dragon 2” and the Adam Sandler deals: “We are investing in original films because doing so can be favorable economically compared to current pay-TV deals and is consistent with the desires of the global on-demand generation to enjoy new movies without having to wait for months after they debut in theaters.”

  • Netflix is “midway” through switching to native HTML5 streaming for its laptop players.

  • There are 6 million people who still love Netflix-by-mail. I don’t know who these people are. Do you?

  • Netflix’s “content obligations” rose to $8.9 billion in Q3, up from $7.7 billion at the end of Q2. This is due to multi-year commitments as part of Netflix’s expansion into new markets, as well as continued investments in original programming.
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