During a recent interview, Netflix CEO Reed Hastings claimed that the company’s internet streaming service will help cable companies like Comcast by spurring greater consumer adoption of broadband internet.
What Hastings Sees in Broadband
- Only 87 million US Internet Households with 92% (80 million) of them currently subscribed to broadband internet services like those delivered by Comcast
- Compared to 115 million US TV Households of which 91% (105 million) subscribe to cable / satellite services
- Netflix’s streaming service could drive a faster convergence of the number of broadband internet households and the number of US cable / satellite households over time
Our Counter-Argument
- Netflix subscriber base is too small
In comparison to the 80 million US broadband households, Netflix has only about 12 million subscribers currently and we expect this figure to grow to about 22 million over the Trefis forecast period
- No overlap between Netflix subscribers and non-broadband population
We believe there is no overlap between Netflix subscribers (trendy, early adopters of technology), and the non-broadband US internet households (late adopters)
Overall, we don’t think Netflix will be able to drive new broadband customers for cable providers like Comcast as Hastings claims.
Furthermore, we’ve identified three ways in which Netflix can hurt Comcast which will be discussed in tomorrow’s note. How relevant do you think broadband is to Comcast (as a percentage of the stock)?
A. 5%
B. 15%
C. 25%
D. 35%
