Netflix Subscriber Trends a Positive for European Networks, Pay TV Giants, Analyst Says

Sky HQ - H 2016
Courtesy of Sky

Sky and others "should be relieved," while the results should also "bode well" for TV network groups, says Liberum's Ian Whittaker.

Netflix's weaker-than-expected second-quarter subscriber trends are a positive for European networks and pay TV giants, according to London-based Liberum Capital analyst Ian Whittaker.

"Whilst we have never seen Netflix as a real threat to broadcasters, the weaker ... results should bode well for the latter," he wrote Tuesday in a report. "Also, pay TV operators that are threatened by the cheaper SVOD alternative Netflix should be relieved on the back of these results."

Internationally, Netflix's subscriber additions came in about 500,000 below expectations. "With Amazon Prime suggesting its entry into more European markets before year-end, [that] implies a not so rosy outlook for Netflix," argued Whittaker.

Discussing the implications for European free-to-air broadcasters, he wrote: "While the overall market share for SVOD platforms such as Netflix is still minor in most European countries (contrarily to the U.S. where half of the country is signed up to the platform), it had been raised by some as a competitive threat to free-to-air broadcasters. Overall we do not see the Netflix offering as a real threat to free-to-air broadcasters as its offering seems to be complementary. The disappointing subscriber uptake suggests that Netflix might have reached a saturated market and as such should bode well for broadcasters."

About the implications for European pay TV operators, Whittaker wrote: "Netflix has been viewed as a real danger for pay TV. Essentially Netflix is a cheaper alternative (price entry point below £10) to pay TV and offers a completely ad-free environment. Also Netflix is not hit by extreme cost inflation through the acquisition of sports rights, an issue we have observed with Sky."

Still, Netflix did not escape a subscriber price increase as it raised monthly prices for early subs in June, "rendering Netflix essentially more expensive than rival SVOD platform Amazon Prime," the analyst said. He added: "It is the very easy cancelation feature of Netflix, which has led to subscriber cancelations."