Analysts pour scorn on Netflix’s claim that Olympics will hit subs

Joseph O'Halloran | 01-08-2012

We’ve all heard of peak oil but a new research note from SNL Kagan may just have given birth to what may be called peak OTT as it predicts a less than rosy future for hitherto over the top king Netflix.
Indeed in presenting a compendium of leading financial and media analysts’ views on Netflix's recent Q2 financial results, Kagan presents a picture of a company whose ascendency in the OTT arena, which to date has been as meteoritic as it has been decisive, is now under serious question.
It reveals that at the end of Q2 2012, Netflix has joined other media firms in the poorly performing stock stakes and, moreover, managing to “speed toward a new 52-week low “on 30 July 2012 only days afterreportingsecond-quarter earnings. In the days that followed, Netflix fared little better.
Over the course of the last two quarters, Netflix subscriber additions have fell dramatically from just over a million adds in Q1 2012 to around half a million the quarter rafter. Wall Street was particularly unimpressed by Netflix CEO Reed Hastings warning of further subsidence in additions for Q3 2012 due to prospective customers watching the London Olympics instead of investing in over the top services. In a letter to investors, Hastings and Netflix CFO David Wells said that the original target for the quarter was in the range of 1–1.8 million which would now be unobtainable because of the Games which are set to run for just over two of the twelve week period.

Going forward, the analysts warn that a much bigger threat to Netflix’s business than the Olympics will be increasing competition in both domestic and international markets. They cite the soon to arrive Verizon-Redbox service, an enhanced Hulu, Amazon’s growing Instant Video, Apple's iTunes and DISH Network's Blockbuster @Home as providing serious opposition. In the UK Netflix is struggling to gain traction in an OTT market dominated by the BBC iPlayer, free to UK Licence Fee payers, and Amazon’s LOVEFiLM. Yet perhaps most of a threat to the still nascent Netflix is NOW TV from UK pay-TV 800lb gorilla BSkyB.