It's Working Out Very Well For Streaming Video

Michael Hedges April 26, 2020 Follow on Twitter

For a day it was the biggest business story other than oil prices, unemployment and coronavirus. And it connects to all, not just obliquely. Such it is with headlines. Each one has a moment. They all blur together.

Streaming video on demand service Netflix reported a gargantuan increase in subscribers last week. More than doubling the expected 7.2 million the subscriber base grew in the first quarter by 15.77 million worldwide to 182.9 million. Company founder and chief executive Reed Hastings issued a flurry of caveats and warnings. “Some of the lockdown growth will turn out to be pull-forward from the multi-year organic growth trend, resulting in slower growth after the lockdown is lifted country-by-country.”

Stock traders, always reflexive, slightly punished the Netflix share price on market opening the next day. “Temporary,” said one stock analyst, quoted by the Benzinga newsletter (April 25). Others groused that subscriber growth, again, was almost entirely from outside the US. Netflix market capitalization eclipsed the Walt Disney Company for a moment or two at US$190 billion. It is also bigger than energy giant ExxonMobile, but this has been a tough month for the oil business.

The disclosure enumerated Netflix increasing North American subscribers by 2.3 million to just short of 70 million in total. Three months ago financial analysts warned that US subscriber growth was stalling in the face of new streaming video entries Disney Plus and Apple TV. Europe, Middle East and Africa (EMEA) subscriptions rose by just under 7 million to 58.7 million. The Latin America total is 34.3 million followed by Asia Pacific 19.8 million, both up.

Country by country subscriber data is not released by Netflix. Only last December did the company begin sharing regional figures. It is very likely that the increases are country specific. In Sweden for example, Netflix’s first quarter subscribers were unchanged one year on, reported Dagens Media (April 22), quoting Mediavision data.

Media watchers generally - and Netflix watchers specifically - note that locked down or nearly locked down populations will continue flocking to streaming video on demand services as well as video games and food delivery services for the foreseeable future. The other locked down population are production houses. Hollywood is a quiet and lonely place now.

As usual, Netflix content chief Ted Sarandos has the answer. "Our 2020 slate of series and films are largely shot, and are in post-production remotely in locations all over the world,” he said, quoted by AFP (April 24). "And we're actually pretty deep into our 2021 slate. So we're not anticipating moving things around.”

Just in case, the Netflix finance crew organized a special bond offering to raise US$500 million and €470 million, which is just about US$500 million. They add up to a US$1 billion five-year senior unsecured note package at about 3% interest. They are essentially selling junk bonds at investment-grade rates. The bonds were “significantly oversubscribed by investors,” said Bloomberg (April 24). The Netflix bonds were issued - like moments - after the European Central Bank (ECB) announced a rule change allowing commercial banks to accept junk-rated “fallen angel” bonds as collateral, explained the Financial Times (April 23).

There are, certainly, dozens of streaming video suppliers. “I think it’s great, obviously, for the consumer to be able to have all these options,” said Mr. Hastings, quoted by Informitv (April 22). “There’s nothing we can do about any of them nor about video gaming nor about YouTube or any of the other competitors for time. So, what we do is just try to figure out how do we have the best service we can kind of steady every day, solid execution, and then we’ll get part of consumers’ viewing. No one’s going to get it all. And it’s working out very well for us.”

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