The average number of DVDs mailed each month to Netflix (NASDAQ:NFLX) subscribers has seen a consistent decline over the years, reflecting the increasing popularity of lower value subscription packages that offer subscribers a limited number of DVDs but unlimited online streaming. The company recently introduced a streaming only plan in the US to capture this demand, for $8/month, after releasing a similar product in Canada. [1] We expect the trending decline in number of DVDs mailed per subscriber to continue as online streaming gains popularity and expands internationally.
Netflix competes with cable and satellite operators like Time Warner Cable (NYSE:TWC) Comcast (NASDAQ:CMCSA), Dish Network (NASDAQ:DISH) and DirecTV (NASDAQ:DTV) for streaming and pay-TV services, as well as video rental services like Redbox.
We currently maintain a Trefis price estimate of $106 for Netflix’s stock, about 42% below the current market price.
International Expansion
Netflix is expanding internationally starting with Canada which presents huge market potential. Since international service is likely to be streaming only, the proportion of subscribers using streaming only service will rise significantly thereby driving down DVDs mailed to each subscriber.
Availability of More Online Content
Currently, only around 20,000 titles are available for online streaming compared to more than 100,000 titles on DVDs. Netflix’s deals with Starz, Relativity Media and Epix are prime example of the company’s efforts to beef up its online content.
Netflix also recently came to terms with Disney to stream re-runs of a variety of ABC, ABC Family and Disney Channel shows. [2] As additional such deals are struck, and Netflix continues to improve its online content, more subscribers will be inclined to choose streaming only service options. Netflix has previously commented that the shift towards streaming services, and reduced DVD shipments, is already expanding to mainstream subscribers.
Think our estimates could be conservative? Drag the trend-line in the chart below to see the impact of various DVD shipment per customer scenarios on Netflix’s stock value.
More Streaming Could Mean Lower Monthly Fees
As we’ve noted above, a shift towards fewer DVDs mailed per subscriber would likely come at the hands of subscribers that choose service plans more weighted towards streaming than DVDs. As these plans can often command a lower monthly subscription fee, fewer DVD shipments would correspond with a reduction in average monthly subscription fees.
Drag the trend-line in the chart below to see the impact of various average subscription fee scenarios on Netflix’s stock value, and tell us your viewpoint in the comment box below.
Our complete analysis for Netflix’s stock is here.
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