Netflix Is So Hot Because It Gives Us What We Want: TV

Netflix is an example of how the internet - and the software that powers it - has enhanced a piece of legacy hardware to which consumers continue to cling thanks to its size and its social-convening role in life.

The result is a brilliant combination of scale, operational efficiency and customer satisfaction. JL

Julia Greenberg reports in Wired:

They’ve created a better way of watching TV content that’s consumer-centric. So much of technology is hard and Netflix is easy. It just works.

We love TV. Like, really, really, really love TV. And we watch an awful lot of it.
We crazy American TV obsessives love TV so much that we consume 2 hours, 49 minutes, and 12 seconds of TV on an average day—more than any other leisure activity. We watch sports. We watch news. We watch shows. We watch movies. It matters, sort of, but it also doesn’t really. We watch stuff. And we love it.
So, it should come as no surprise then that we also love when companies make it cheaper and easier for us to watch more stuff. No ads? Bring it. Lower prices? Where? We want it, we want it now, and we want it better than before.
Which is pretty great for this one multi-billion dollar company that has capitalized wholly and completely on our one—very true—love for watching more stuff. That company is Netflix.
Since its IPO more than a decade ago, Netflix has grown significantly, and so has the company’s stock price. A share of Netflix’s stock now trades for around $700, which is a hefty price for smaller investors hoping to buy in. That all changes soon as anyone who owns Netflix’s stock up through today will get seven shares for each one they own when the stock officially splits in mid-July. The total value of all Netflix’s shares as a whole won’t change—at least not until more eager investors start buying in at the lower price.
The company seems to be following the example of Apple, which split its stock last summer when its shares were trading around the same price as Netflix is now. To be sure, Apple was already worth much more than Netflix’s current $40 billion market cap. But after the split, more buyers bought in, and its value climbed even more. And the same could happen for Netflix. In a crowded field with new upstarts, billions of dollars flowing to incumbents, and giant tech companies hoping to get in the game, the love for Netflix has never been greater. Why?
It’s all about TV.

Up, Up, Up

It wasn’t always obvious that Netflix would be such a huge success. Even a year ago, investors worried that Netflix wouldn’t be able to continue significantly growing its subscriber base. They feared it would have trouble expanding abroad and felt the company was spending too much on content while not offering up enough good stuff.
Those concerns proved unfounded. Netflix continued to grow, hitting 40 million paying US customers and 20 million abroad, according to the company’s latest numbers, thanks in part to huge push for original programming that yielded some critical success.

The love for Netflix has never been greater. Why?

Netflix also faces hefty competition from both traditional cable and broadcast networks—as well as some scrappy (and some not so scrappy) upstarts. There’s Amazon Prime, Hulu Plus, HBO Go, Showtime, and, ahem, every cable and broadcast network in the world. But according to Nielsen, more than 40 percent of American homes pay for an on-demand video subscription service, and 36 percent of those households subscribe to Netflix, far outpacing Amazon Prime (13 percent) and Hulu Plus (6.5 percent).
Not only that, but according to analysts at Wall Street firm FBR Capital Markets, if Netflix had “ratings” in the traditional TV sense, it would have a larger 24-hour audience within a year than any of the major broadcast networks. This analysis is a rough estimate—Netflix doesn’t release data on what viewers watch, and even if it did, it wouldn’t quite be comparable to ad-sponsored live shows. But the firm says that by using Netflix’s numbers on how many billions of hours consumers are watching on its service, it is outpacing its old-school competition. Not to mention that “57 precent of Netflix users, when asked to choose, said they would take Netflix over pay TV,” the analysts write. 

‘It Just Works’

“Why is Netflix winning consumers’ time and attention? It’s really simple,” says Richard Greenfield, a media industry analyst for BTIG. “They’ve put the consumer first, giving them what they want, anytime they want it, and on any device.”  Netflix offers consumers lots of content with no commercials, he says. Sounds simple, right? But seriously, what more could we want?
“They have invested a lot in technology and content,” says Jeff Wlodarczak, CEO and senior media and communications analyst at Pivotal Research. “So their service looks better than alternatives. It works on more devices, the user interface is better, and their content is quite compelling.”
While cable and broadcast networks may be trying to get in the streaming content game, Netflix has still maintained its dominance when it comes to Internet TV. “The mistake potential OTT alternatives make is, ‘Hey, we can just throw up our content and compete with Netflix,’” Wlodarczak says, referring to traditional networks pursuing the direct-to-viewer stratagy known as “over the top.” “But [Netflix is] spending north of $3 billion just on content.”
Of course, that doesn’t mean the company won’t face challenges in the future. Expansion internationally has proven more difficult in some markets like France, and successful growth into new markets like Japan, China, or South Korea is yet to be seen. Other entrants like Amazon may put more money towards original programming, or Netflix’s upcoming programming could turn out to be a flop. And any company could have a bad quarter, leading investors to reconsider, or flee. But, for now, Netflix seems to have figured us—and the market—out.
“They’ve created a better way of watching TV content that’s consumer-centric,” Greenfield says. “So much of technology is hard and Netflix is easy. It just works."