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The Netflix Effect How Netflix Is Changing The Rules For TV

Report by Tim Mulligan and Alun Simpson
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The 20,000 Foot View

Since reinventing itself as an online video subscription platform Netflix has transformed the paid video market. By delivering its online offering into consumers’ living rooms through connected TVs it removed the barrier between the TV and the internet.  A competitive pricing strategy and commissioning attention-grabbing content bought the platform consumer mindshare both in its core US market and internationally. On-demand programming combined with commissioning shows targeted at specific consumer segments presents audiences with a compelling alternative to expensive Pay-TV bundles. The steady increase in cord cutters and cord nevers means that the traditional Pay TV sector is quickly having to learn best practice from Netflix in a bid to survive and thrive in this new market.

Key Findings

  • Netflix’s fastest growth is coming from its non-US markets. Its International subscriber base has tripled between 2012 and 2015
  • Netflix is effectively subsidizing its international subscriber growth with        less revenue earned from its non-US subscribers
  • Despite slowing growth in US subscriptions between 2012 and 2014, ARPU was up 
  • Netflix’s fastest growing revenue source is international subscriptions with a CAGR of        between 2012 and 2014
  • In 2015, Netflix will spend the same as Amazon and Hulu, its two main online competitors combined, on content
  • HBO’s annual content budget is        less than a third of Netflix's total content budget-which includes licensing as well as original content
  •        of consumers aged        to        have an online video subscription

Companies mentioned: Netflix, HBO, Sky, HBO Now, Sky Go, Apple, Apple TV, The Echo Nest, Next Big Sound, Comcast, Time Warner Cable, Brighthouse, Charter

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