The TV view of the new video industry could not be clearer.
After recent reports of lower traditional pay TV subscribers from AT&T (its DirecTV and U-Verse services) and Comcast, Netflix offers a different picture — more customers worldwide.
In the third quarter, Netflix gained 5.3 million global subscribers — 4.4 million international and 850,000 in the U.S. — and both results are higher than expected.
At the same time, Netflix said it will be ramping up TV-movie production, spending an eye-popping $7 billion to $8 billion — from $6 billion in 2017. This follows news of an average 8% hike in its consumer retail pricing.
While companies like Walt Disney will retain movies, as part of its new digital video service, Netflix possesses a big library of TV and movie product, as well as new content.
And there is new creative programming coming its way — ABC-centric TV producer Shonda Rhimes and comedian Jerry Seinfeld. That’s where the $7 billion to $8 billion come in.
If that doesn’t grab your attention, try this: Netflix plans to spend around $17 billion over the next several years on content creation — now rivaling the spending levels of major traditional TV and movie studio.
With the expectation of improved overall business results from its third-quarter financial results, Netflix's stock rose sharply after the stock market closed Monday — 9% higher to over $209 share.
But the key question is — can traditional TV-based companies like AT&T and Comcast catch up? Movie studio like Disney may have a chance, but what about traditional pay TV providers, cable, satellite and telco companies?
Recently, AT&T talked up how its OTT DirecTV Now service added almost as many subscribers — 300,000 — as its full-fledged satellite DirecTV service lost — 390,000.
But missing here are current profit margins for the new OTT services — which can be a fraction of traditional pay TV packages.
Speaking on CNBC recently, Craig Moffett, senior research analyst for MoffettNathanson Research, said AT&T gets an effective $60-a-month profit margin per subscriber from its traditional DirecTV business. But it is running an effective $20-margin loss for its DirecTV Now business.
“It tells you they are really struggling,” he said.
What’s the strategy? Gain consumers first, it appears, with new, discounted digital packages of live, linear TV networks priced anywhere from $20 a month to around $45 a month, depending on the package. In contrast, traditional pay TV packages can run from $100 to $125 a month.
All this underscores that TV networks and new pay TV providers have yet to determine the right business formula.
The next question: When will those new discounted OTT digital services slowly begin to raise their prices?