Thanks to aggressive International expansion and popular programming Netflix, Inc. appears to be emerging as the vastly dominant player in online video streaming market. The wildly popular video streaming service reported that its number of subscribers recently passed the 65 million mark largely due to its launch in Australia and New Zealand. The company’s expansion to Japan, Spain, Italy and Portugal is expected to take place this year, raising expectations of subscriber and revenue growth. The strategy is paying off for Netflix as its shares traded up 10.2% at $108.11 per share before today’s market opened.
In addition to its international expansion, Netflix recently rolled out a series of new content including Sense8, Daredevil (its first Marvel series), Bloodline and Unbreakable Kimmy Schmidt. These series have all received critical acclaim and a strong positive reaction from viewers. Furthermore, Netflix brought back the popular shows House of Cards and Orange is the New Black. The comprehensive growth strategy should result in an increase of at least 5 to 6 million subscribers in 2015 and 2016, and some analysts project that the number of subscribers should reach approximately 174 million by 2020 and greater than 200 million by 2021.
One of Netflix’s major competitors, HBO, entered the subscription video marketplace earlier this year by launching HBO NOW, it’s first offering without a cable subscription. The subscription costs $15 monthly. Netflix, however, does not appeared dazed by HBO’s latest move. Netflix has stated that Netflix and HBO are not substitutes for one another given the different content offered by each service.
In addition to different content offered, Netflix and HBO also have very different cost structures. In 2014, the companies earned nearly identical revenues. Netflix, however, made approximately $266 million in annual profit whereas HBO made a profit of about $1.8 billion. Netflix ended 2014 with about 57.4 million subscribers whereas HBO had 138 million total subscribers.
Despite the contrasting numbers, Netflix is growing much faster than HBO. Once Netflix reduces the amount of capital spent on international growth, its profits will likely increase dramatically.
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