Cable Technology Feature Article
October 28, 2008
Will Netflix be Different?
By Gary Kim, Contributing Editor
In past economic slowdowns, U.S. consumers have tended not to abandon their video entertainment or landline telephone services, anymore than they have tended to cut off their electricity. It isn't clear what will happen to mobile and broadband access, as we have less experience with consumer behavior for these highly-adopted services.
Many think what will happen is this: consumers will extend their past video and landline voice habits to broadband access and wireless as well. That is to say, people will not cancel services, but might reduce consumption of enhanced features to control their spending. The obvious “outlying” data points likely will come in the wired voice area, as that is a product in secular decline. An economic slowdown might simply accelerate existing patterns.
There are other possibilities as well. Though consumers plausibly will downgrade video, mobile or broadband packages to more-affordable versions, they might not do so across the board. Consider that Stifel Nicolaus (News - Alert) analyst Scott Devitt thinks Netflix customers, who buy a service many would view as akin to premium cable services, might not behave as they have in the past.
That is to say, some Netflix plans, especially those offering virtually unlimited viewing, might be seen as better substitutes for other types of entertainment spending.
“In the current economy,” says Devitt, “Netflix value-oriented offering stands out to us as a compelling alternative to more expensive entertainment alternatives.”
In essence, Devitt is using the classic argument in favor of cable TV subscription services — good family value at a reasonable price — and extending that argument to Netflix.
Devitt notes that the average Netflix customer spends $13.60 a month for two-at-a-time unlimited DVD rentals. By contrast, he notes that a night at a “Ticketmaster event” for a family of four might cost $70.
“Due to its relative value, we believe the Netflix existing subscriber base may remain more stable in the downturn and new subscribers could improve once the initial shock of the past few months subsides,” he argues.
If Netflix is most akin to video on demand services, but with a fixed monthly price, new behaviors could emerge. The reason VoD traditionally has not been seen as so resistant to downgrades is that it is sold on a transaction basis, and therefore it is easy simply to reduce buying.
The Netflix flat rate, "all you can view" plan offers significantly-different economics for heavier use. It is a situation worth following.
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Gary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary's articles, please visit his columnist page.
Edited by Mae Kowalke