Netflix and the Internet ecosystem
The United States is Netflix’s (NFLX) biggest market, and it’s a highly penetrated one. However, Netflix still believes it will be able to have 60 million–90 million subscribers in the long term in the United States. Netflix stated on its fiscal 2Q16 earnings interview that this confidence stems from the fact that the company believes the Internet ecosystem is developing in the United States. Netflix further stated that the rising sale of smart television sets, Internet-connected devices and virtual MVPDs (multichannel video programming distributors) is fueling the development of the Internet ecosystem.
As a result, the company stated, “So we’ve got to stay on our toes on that basis, but think about entertainment and pay television are pretty ubiquitous. So in the Internet video, that’s a pretty big bet that’s continuing to pay off. So you put those two forces together and that’s why we feel so good about the long-term in this market.”
According to a report from comScore, and as the chart above shows, 44% of people prefer to watch Netflix via Internet-connected TV devices. Next in order of preference are desktops or laptops, gaming consoles or Blu-ray devices, and mobile devices.
Other factors that could impact Netflix’s subscriber growth
Netflix stated in its 1Q16 letter to shareholders that in 2Q16 and 3Q16, it expects many of its US subscribers will be released from a grandfathered-in price and have the option to continue at the SD (standard definition) plan at $7.99 per month or move up to the HD plan at $9.99 per month.
The company also stated at its fiscal 2Q16 earnings interview that it expects this “ungrandfathering” to complete by the end of this year and expects its subscribers not to churn out but to choose between its lower priced plan or move to the higher priced one. As a result, it expects the growth of its ASP (average selling price) to be consistent.