Netflix’s snatching up of the TV viewing share
It appears that Netflix (NFLX) is set to lay claim to the majority of television viewing. According to a FierceCable report from earlier this month, MoffettNathanson analyst Michael Nathanson stated that “using Nielsen data” streaming of shows on Netflix comprised around 6% “of total traditional TV viewing in 2015,” compared to only 4.4% in 2014. According to the same MoffettNathanson report, it is expected that Netflix will make up 14% of total TV viewing by 2020.
As the above graph indicates, CBS (CBS) saw its viewing decline by a whopping 42% in households that subscribed to Netflix. Twenty-First Century Fox (FOXA), The Walt Disney Company’s (DIS) ABC Network, and Comcast’s (CMCSA) NBC, by comparison, saw their viewership decline by 35%, 32%, and 27%, respectively.
Netflix’s domestic streaming segment
Netflix’s domestic streaming segment had revenues of $1.1 billion in 4Q15, with a contribution profit of $379 million. Its contribution margin was 34.3% in 4Q15. Netflix believes that the breadth of its original programming will be the key to drawing viewers to its service. Netflix has stated that it is rolling out more original programming than linear television networks do in an entire year. It also believes that judging by the popularity of the largely Spanish-language (EWP) show Narcos, the quality of its content and not the language will be the sole criteria that will let the company gain more subscribers in the US.
Notably, Netflix makes up 0.86% of the PowerShares QQQ Trust Series 1 ETF (QQQ), which has exposure of 4.7% to the TV sector.
Now let’s take a closer look at Netflix’s approach to technology.