Netflix: Threats to growth include TV Everywhere, content costs

Netflix in its fourth quarter earnings gave a nod to TV Everywhere and better offerings from pay-TV operators as the greatest threat to its profit streams.

"There is the substitution threat of better offerings from MVPDs, with free TV Everywhere, in particular, making supplemental services like Netflix and Hulu Plus less desired," the company said in its letter to investors, adding that HBO Go, Amazon and Hulu Plus could shape up as strong competition. It also said piracy, especially in international markets, would continue to be a problem.

But the biggest threats to its growth, Netflix said, would be increasing content costs that would make it cost prohibitive, and net neutrality issues not addressed by the Federal Communication Commission's recent order.

"The focus is on fair-play within an ISP's network, but does not explicitly address entry into the ISP's network," it wrote. "Delivering Internet video in scale creates costs for both Netflix and for ISPs. We think the cost sharing between Internet video suppliers and ISPs should be that we have to haul the bits to the various regional front-doors that the ISPs operate, and that they then carry the bits the last mile to the consumer who has requested them, with each side paying its own costs." The company said it would advocate an "open, regional, no-charges, interchange model."

It said that Thursday, on its blog, it would publish performance statistics about individual ISP performance as reported by subscribers. The best? Cable operator Charter Communicatons.

For more:
- see the Netflix website

Related articles:
Netflix tops 20 million subscribers; $596 million Q4 revenue
Netflix forecast: 23.7 million subscribers by end of 1Q2011; revenues to $717 million 
Netflix: More viewing hours for Apple TV than iPad; Web TV a 'big growth category'

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