Is Netflix On The Ropes?
Not long ago Netflix was a stockmarket darling. The California-based firm transformed the video-rental market by renting out DVDs through the post, and by streaming films and television shows over the internet. On October 23rd, though, it announced an 88% fall in third-quarter profits and its market capitalisation, $15 billion in July 2011, shrivelled to $3.3 billion.
Netflix has been a victim of its own success. For about $8 a month, the company woos subscribers with programmes and films that normally require a pricey pay-TV subscription. Consumers love it: the average Netflix subscriber watches more than five TV shows and nearly three and a half films per week, according to a report from GfK Media, a market-research firm. But this threatens the producers of the programmes that Netflix rents out. Broadcast and cable networks earn a great deal more from licensing deals with pay-TV companies than they do with outfits such as Netflix—some $41 billion in 2012 with the former, against $3.5 billion with the latter. So any sign that Netflix is hurting a broadcast or cable network’s bottom line quickly leads to higher licensing fees or curbed content sales.
