Naming Ted Sarandos and Netflix to the 2011 Digital All-Stars list was an easy decision given the company’s success in revolutionizing the streaming video business, to the point where B&C put the company on our cover asking top execs if it was a friend or foe (the verdict is still out). But remaining the unchallenged leader in subscription streaming video will be harder as Netflix faces consumer discontent over recent price hikes and a growing list of competitors who are determined to poach subscribers, content rights and buzz.
Netflix tackles those challenges from an enviable position of having 25.6 million global subscribers that churned out $1.5 billion in revenue in the first half of 2011, up from about $1 billion last year, and content deals with most major suppliers of movies and TV programming, thanks in part to Sarandos. He joined the company in 2000 and has led the content acquisition efforts that have been so crucial to its growth.
That success has prompted Amazon, Google, Wal-Mart, Dish Network (which acquired the Blockbuster assets out of bankruptcy) and Apple to expand their streaming services, raising worries that their growing libraries of content would slow Netflix’s sub growth and potentially touch off costly bidding wars for content that could reduce Netflix’s enviable margins.
An even more serious competitive threat comes from cable, telco and satellite providers that are inking TV Everywhere deals with programmers for digital rights. Pay TV rival HBO has launched the highly regarded HBO Go app for its subscribers. Comcast has built up an online site used by more than 8 million subs that by year-end will have some 200,000 pieces of content—including new episodes of broadcast TV series that are not available on Netflix, which generally does not have next-day access to current fare.
Netflix has responded to those threats by doubling down its bets on streaming video. Sarandos has signi ! cantly increased spending for digital rights, cutting deals with Disney/ABC, Viacom, CBS, Twentieth Century Fox, Miramax and NBCUniversal in the last nine months alone. And top management has revised pricing to separate DVD and streaming video plans.
While the pricing scheme provoked outrage from consumers and could slow subscriber growth this year, it will also allow Netflix to pump even more money into digital content rights.
Sarandos has already invested in Netflix’s first original series and has said he will be bidding against HBO when a package of Warner Bros. movies comes up for renewal. “We’re writing large checks,” Sarandos noted earlier this year at NAPTE. That may be good news for both content owners and Netflix as it battles growing competition.
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