How Long Can Netflix's Amazing Run Last?

More spending + more customers + a falling (inflation-adjusted) price = 600 percent stock growth in two years. How long will the Netflix formula hold up?
More

In the two years since CEO Reed Hastings groveled before customers about splitting the company's streaming and rental services, Netflix's U.S. subscriber base has grown by nearly 50 percent and its stock price has quintupled.

Zachary Seward at Quartz, who is consistently great on this topic, graphs the change, which shows Netflix blasting by HBO's estimated subscriber base. Netflix said it wanted to become HBO faster than HBO could become Netflix. Well, here ya go ...

It's not clear if more Netflix consumers are good or bad for traditional TV companies. Overall pay-TV subscribers (that's cable, satellite, and telco) haven't declined in the two years since Netflix added those 10 million new customers you see above. That suggests that Netflix might be more complementary to old-fashioned TV than some analysts initially thought. 

But (and this is the big point) more Netflix consumers are clearly good news for Netflix consumers. If Netflix can get one to two million more people to pay $7.99 for its service each quarter, it doesn't have to raise prices on existing customers. Indeed, Netflix hasn't changed its monthly fee ($7.99) for the last two years, which means streaming TV is actually getting cheaper each year in inflation-adjusted terms. That's amazing. Even more amazing is Hastings spending hundreds of millions of dollars (amortized over who-knows-how-long) on new contracts with Disney and exclusive rights to shows like "House of Cards" and "Orange Is the New Black." If it needs 1-2 million more customers each quarter to keep revenue and net income targets, then so far, so good ...

But is this sustainable? As Netflix gets cheaper, the entertainment catalog it's supplying is getting very expensive. In a way, Netflix is at a disadvantage here compared to Amazon Prime, since Wall Street simply doesn't care about Amazon profits, and it's not as lucky as the traditional TV world, where the richest channels (like ESPN) earn more per subscriber each year. Netflix is an amazing and astonishingly affordable service whose growing popularity makes it cheaper, in real terms, every year. That's a helluva deal, but who knows how long it can last.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

The Death of Film: After Hollywood Goes Digital, What Happens to Movies?

You'll never hear the whirring sound of a projector again.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

The Death of Film

You'll never hear the whirring sound of a projector again.

Video

How to Hunt With Poison Darts

A Borneo hunter explains one of his tribe's oldest customs: the art of the blowpipe

Video

A Delightful, Pixar-Inspired Cartoon

An action figure and his reluctant sidekick trek across a kitchen in search of treasure.

Video

I Am an Undocumented Immigrant

"I look like a typical young American."

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Writers

Up
Down

More in Business

Just In