September 14, 2016, 3:47 P.M. ET
Neflix and Liberty: Flipping the Competition, Says Drexel
By Tiernan Ray
Shares of Netflix (NFLX) are up $1.14, or 1%, at $97.23, after TV empire Liberty Global (LBTYA) this morning said it signed a “multi-year partnership” with Netflix that will make available Netflix programming to Liberty’s digital TV customers in 30 countries.
The two already had a partnership for Liberty’s “Virgin Media” property.
Netflix CEO Reed Hastings said “Combining the Netflix app – and all the great content it provides – into the familiar, easy-to-use cable box makes both more appealing.”
Drexel Hamilton’s Tony Wible, reiterating a Buy rating on Netflix shares, and a $110 price target, writes that Liberty’s 29 million subscribers will “improve NFLX’s international sub growth.”
“However, the deal is more important,” he writes, “as its signifies a shift in MVPD focus, changes the competitive advantages for other MVPDs, and perpetuates a vicious cycle for TV networks that will help NFLX over the long run.”
This is an example of Netflix winning over desperate video providers as customers:
We have long maintained that the TV ecosystem faces unsustainable pressure as ad revenue growth slips and can no longer cover programing cost inflation. This pressures affiliate fee rates and creates a dilemma for MVPDs that must either pass the costs along to consumers (risking sub losses) or face lower video margins. The cost pressures are pushing MVPDs to emphasize their data business and to get free video content from OTT sources. Essentially, some of NFLX’s competition switches to being a distribution partner.
And this is an example of the value of Netflix, he believes, as a platform:
The most underappreciated aspect of NFLX integration may be the effects on viewing. We see NFLX use spiking in integrated homes as its content becomes more accessible. This would hurt TV ratings, pressure ad revenue, and perpetuate the vicious cycle that helps propel NFLX’s business. The weaker TV networks become the less they have to pay for content and the more dependent they are on NFLX for monetization. It also pushes more consumers to cut/shave the cord (more discretionary money for NFLX) and incentivizes MVPDs to emphasize their data business.
On a more subdued note, Barton Crockett with FBR & Co., who has a Market Perform rating on Netflix, writes that the deal “is clearly a great development for Netflix.”
“Our main caveat is that this kind of news is arguably already embedded in a stock that is expected to be adding over 10 million new subs internationally per year.”
Neflix and Liberty: Flipping the Competition, Says Drexel
By Tiernan Ray
Shares of Netflix (NFLX) are up $1.14, or 1%, at $97.23, after TV empire Liberty Global (LBTYA) this morning said it signed a “multi-year partnership” with Netflix that will make available Netflix programming to Liberty’s digital TV customers in 30 countries.
The two already had a partnership for Liberty’s “Virgin Media” property.
Netflix CEO Reed Hastings said “Combining the Netflix app – and all the great content it provides – into the familiar, easy-to-use cable box makes both more appealing.”
Drexel Hamilton’s Tony Wible, reiterating a Buy rating on Netflix shares, and a $110 price target, writes that Liberty’s 29 million subscribers will “improve NFLX’s international sub growth.”
“However, the deal is more important,” he writes, “as its signifies a shift in MVPD focus, changes the competitive advantages for other MVPDs, and perpetuates a vicious cycle for TV networks that will help NFLX over the long run.”
This is an example of Netflix winning over desperate video providers as customers:
We have long maintained that the TV ecosystem faces unsustainable pressure as ad revenue growth slips and can no longer cover programing cost inflation. This pressures affiliate fee rates and creates a dilemma for MVPDs that must either pass the costs along to consumers (risking sub losses) or face lower video margins. The cost pressures are pushing MVPDs to emphasize their data business and to get free video content from OTT sources. Essentially, some of NFLX’s competition switches to being a distribution partner.
And this is an example of the value of Netflix, he believes, as a platform:
The most underappreciated aspect of NFLX integration may be the effects on viewing. We see NFLX use spiking in integrated homes as its content becomes more accessible. This would hurt TV ratings, pressure ad revenue, and perpetuate the vicious cycle that helps propel NFLX’s business. The weaker TV networks become the less they have to pay for content and the more dependent they are on NFLX for monetization. It also pushes more consumers to cut/shave the cord (more discretionary money for NFLX) and incentivizes MVPDs to emphasize their data business.
On a more subdued note, Barton Crockett with FBR & Co., who has a Market Perform rating on Netflix, writes that the deal “is clearly a great development for Netflix.”
“Our main caveat is that this kind of news is arguably already embedded in a stock that is expected to be adding over 10 million new subs internationally per year.”
