Netflix Stock Boom May Bring Gloom to Hollywood

Reed hastings netflix

Virgin Media pact could foretell future problems for TV networks, distributors

A deal announced Monday between Netflix and Virgin Media in the U.K. is the likeliest reason for the streaming service’s stock rocketing past $300 this morning to record highs.

But what’s great news for Netflix may not be as rosy for Hollywood, analysts caution, whether that’s the content companies with which Netflix competes or the pay-TV companies which pay the programmers billions of dollars in affiliate-fee revenue each year.

As Doug Anmuth of J.P. Morgan notes, Virgin Media may be just the first cable operator that gives its subscribers access to Netflix on its set-top box alongside other programming options.

“We believe the deal is significant for Netflix, as it is the company’s first ‘through-the-middle’ partnership with a pay-TV provider, and it could open the door for similar distribution deals in other geographies,” he wrote, noting that only Virgin subs who use its Tivo set-top will get Netflix access.

But as Janney Capital Markets analyst Tony Wible notes, elevating Netflix to the same level as traditional TV networks could ultimately provide them increased competition. What was once a streaming service on a different TV input or device is now something so integrated that Tivo’s implementation will even surface Netflix in search results.

“The real call based on this announcement is that it is incrementally negative for traditional networks,” he wrote. “Netflix content is now only a click away, and we expect to see higher utilization of the Netflix service, which we believe will come at the expense (at least in part) of traditional TV networks, particularly for lesser watched programming.”

Netflix has already been blamed for ratings downturns in the past particularly for Nickelodeon, though parent company Viacom has denied that the short-term downturn was the result of so much of its programming also being available via Netflix.

Ted Hall, senior analyst with Informa Telecoms & Media, believes that the threat Netflix provides on set-top boxes extends beyond the networks to the pay-TV providers themselves.

“The danger for Virgin Media is that its customers will find Netflix to be a revelation that they would not otherwise have stumbled upon, opening their eyes to a low-cost subscription TV service that satisfies their core entertainment needs,” he said. “Rather than strengthening the appeal of TiVo, the addition of Netflix could in fact do the opposite and encourage customers to cut the cord and settle for a cheaper combination of broadband, Netflix (via other devices) and free-to-air TV.”

As of 9:30 a.m. PT, Netflix had surpassed $308, up nearly 14%. Netflix’s previous all-time high was $304.79 per share, hit on July 13, 2011. Highest closing price was $298.73, also on that date.

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  1. Linda says:

    I pay a lot of money every month for my cable TV subscription which includes Showtime, HBO and many movie channels, but I find myself watching Netflix more often than anything else. Even the older shows on Netflix are more enjoyable than much of the new things on cable TV. No commercials, no network logos on the screen and other stuff cluttering up the screen… You can binge watch a series if you like. Older TV shows usually do not have all the offensive content I am seeing in today’s TV shows. Comedies are funnier on Netflix than on today’s TV. The only downside to Netflix is that there is still a lot of stuff not available that I would like to see.

  2. Chris says:

    I’ve long seen this day coming and it’s unfolding exactly as I anticipated: The antiquated pay-TV/cable companies pointing the finger at Netflix and blaming it for THEIR lack of creativity. If you get too comfortable in your “fail-proof” system and lose the foresight to accurately predict trends and potential changes to the viewing landscape, then your time perched on top is temporary. Cable/Pay-TV services are now beginning to face the same fate of the record industry: extinction! I haven’t paid for cable in over 4 years, I was tired of paying over $100 a month for a lackluster experience I never used enough to get my dollar’s worth. I’ve been perfectly content with a Netflix and Hulu Plus account in combination with my Apple TV. If I’m really fiending for a show that one of the prior two got be hooked on, then I’ll gladly purchase a season pass from iTunes. And that’s just it: People want a choice, they want to choose their content and are willing to pay for it so long as it’s reasonably priced. Cable TV got greedy. I can pay my internet fee, Netflix, Hulu, and order up a season pass on iTunes for the same price I was paying COX (the shittiest cable provider in the U.S.) for a sub-par viewing experience with very little choice over on-demand content. So, don’t blame Netflix, the success of a multitude of network shows have the streaming service to thank directly for it (Breaking Bad, anyone?). The antiquated Nielsen-rating system either must be updated for this era of viewing or simply done away with entirely. There are more creative ways of licensing and advertising available if one chooses to embrace them that would enable networks to continue to function sufficiently. The way to ensure failure: Offer ONLY Pay-cable access. The instant Premium channels like HBO and Showtime start offering their On-Demand viewing options outside of the requirement of a pay-tv/cable service will signal the official death knell of cable . . . If you listen closely, you can almost hear the bell now.

    • Joe Smart says:

      Netflix gets its most valuable content from the cable channels that rely on the antiquated Pay-TV model for the majority of their revenue, so your argument doesn’t really hold water. Netflix also has no delivery system of its own and relies on internet providers who are, in many cases, the same companies providing cable. What do you think is going to happen to Netflix when internet providers switch to metered billing and start charging by usage rather than selling the service flat rate? Netflix has zero leverage over internet providers. When watching movies over Netflix becomes as expensive as a cable TV subscription people will abandon the service in droves.

    • Yirmin says:

      Of course if Cable were to become extinct tomorrow it only means that your choices would be more limited and you would quickly find the Netflix and Hulus of the world taking advantage of that new found power by raising rates.

      The reality is cable began to write its own demise when they expanded into more and more channels. In the 70’s and 80’s you had what was probably a sustainable number of channels. Now you have too many channel that are competing for a limited number of viewers. In a perfect world, the end result would be people in the creative side would lower their wages as their product had less value… instead they continue to push for higher salaries for a less valuable product that will be seen by fewer people… Net effect those shows that people could watch more than once get push aside for cheap reality crap. Eventually Netflix will run out of products to sell as no one wants to watch Big Brother reruns.

      The industry needs to adapt to the new reality that content will not be seen by as large of an audience in the future. It will be lots of little niches.

    • Christopher Hobe Morrison says:

      There is only one problem with this: many of us get our high-speed internet from the cable companies. It’s the best we can get. I gave up my television a long time ago because there wasn’t anything I wanted to watch even if had been free, which it wasn’t! Recently Time-Warner began offering BBC World News, and I remember they also offered France24. I did start getting cable television for awhile, but I soon realized that France24 was gone and BBC World News had become one of those half-hour loops that aren’t worth watching. Mostly I listen to radio: BBC Radio 3 and 4, WKCR in New York, NPR news, Kol Israel, etc. I have been hearing lately that Time-Warner’s customers have been leaving in droves because of the television. I have been doing speed tests on my internet, and found that I was getting 25-35 MB downloads when Time-Warner told me I was paying for 10-15 MB. I wasn’t complaining, and when I moved from Pine Bush, NY, to Lake Katrine (just north of Kingston) the speed didn’t just stay the same, it actually went up a bit. Then one day without any warning my speed dropped to 10 MB. I have assumed that Time-Warner and the other cable companies would get their speeds up bit by bit as technology improved for the benefit of their internet customers. Why short their internet customers? Could it be that they think if their internet customers have problems with the internet service they will go back to television with looped infotainment news, game shows, paranormal and true crime shows? By the time I got rid of television the only shows I could stand to watch were Dora, Diego, and Wonder Pets. If this is what they are doing they will just lose internet customers, not gain television viewers.

      So the cable companies could ruin things for people who watch television on the internet, by lowering connection speeds. But they will be ruining things for a market they could make a lot of money from. Of course with the cable companies, this has never stopped them before.

      • Joe Smart says:

        There’s a much simpler way to stop Netflix from becoming a cheap cable killer and it’s already been endorsed by the FCC–internet providers will start providing service on a metered basis rather than at a flat rate. Once internet providers do this watching movies on Netflix will be no cheaper than a cable TV subscription.

  3. Joe Smart says:

    Of course since Netflix still primarily relies upon content deals with outside companies for it’s programming this could also end up being bad for Netflix. Networks could decide to withhold their programming from the streaming service altogether if it feels Netflix is adversely affecting ratings or subscriptions (as has already happened with Starz) or content providers could significantly jack up what they charge Netflix for programming to make up for lost revenue. If Netflix is perceived as a problem rather than a revenue stream the networks could turn off the programming spigot and provide their wares to Hulu or Amazon instead. Content providers are the ones with all the power here, not Netflix.

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