For the time being, Netflix is trying to be an ally of pay-television

For the time being, Netflix is trying to be an ally of pay-television

Sep 14th 2013 |From the print edition

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UNTIL recently, they were rivals. But on September 10th Virgin Media, a British television company, said that it would make Netflix, an online-video service, available to 1.7m of its customers through their set-top boxes by the end of the year. For the first time Netflix subscribers will have access to the service through pay-TV. Hitherto they have had to use game consoles and other electronic paraphernalia to watch Netflix shows on their TV sets. Eliminating this hassle may win Netflix more customers and help Virgin Media retain its, too, by making a cable subscription a gateway to other services. Netflix’s share price jumped on news of what may be the first of many deals that extend its reach.Netflix has recovered impressively from a nasty stumble in 2011, when it announced changes to its pricing structure so unpopular that they had to be abandoned. As customers quit, its share price plunged (see chart). This year it has been the best-performing share in the S&P 500.

Investors are pleased that it is devoting some $150m of the $2 billion it spends each year to acquire content on original programming. It has already achieved hits with home-made shows such as “House of Cards” and “Orange is the New Black”, which are available only on Netflix. This strategy may help keep subscribers hooked and differentiate it from rival online-video services, such as Amazon’s.

Investors applaud the firm’s push into new markets (rather than complaining that the heavy investment involved is depressing profits). Some 7m of the 38m Netflix subscribers are now outside America.

The TV executives who once reviled it are starting to change their tune in part because pay-TV subscribers failed to flee cable en masse for Netflix, as was once predicted. The firm is also winning over former critics by spending billions to license content from big media firms, such as Viacom and CBS, boosting their profits. “We view Netflix as a friend,” Leslie Moonves, the boss of CBS, has said.

Yet the big cheques it is writing worry some sceptics. In June Netflix had at least $6.4 billion in content liabilities due in the next few years. To pay, it must keep growing fast, fend off competition and hope rules do not change in America that could make it more costly to deliver content over a broadband connection.

It will need to balance disruptive innovation with not irking the content-owners whose material it must continue to license (as well as making its own). Netflix may not be so different from Frank Underwood, the scheming senator played by Kevin Spacey in “House of Cards”. It can form alliances with incumbents and make life better for them, if it suits its agenda. But the plot can always take a dramatic turn.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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