Let’s ask the crazy question – Can Netflix surpass Comcast in market valuation in the next five years? First, let’s dive into a recent study by MTM, a London based consultancy catering to the who’s who in media. The study addressed the question of how the US OTT market will change over the next three years. The participants included Fox, Lions Gate, Starz, Verizon, NBC, DirecTV and others. MTM defines Premium OTT as “subscription film and TV services delivered over the open internet to connected devices”.
The three key takeaways of the study 1) OTT is expected to grow from $4B in 2014 to $8B-$12B by 2018 2) 15-20 niche OTT players with 100k or more subscribers will emerge and 3) US market share for Netflix will decline from 85% in 2014 to 50% in 2018. Next, let’s throw in some financials into the picture.
Breakdown by Quarterly Revenue
| Market Cap | 3/31/15 | 12/31/14 | 9/30/14 | 6/30/14 | |
| Netflix | $47.8B | $1.57B | $1.48B | $1.40B | $1.34B |
| Comcast | $161.5B | $17.85B | $17.73B | $16.79B | $16.88 |
Netflix Subscriber Growth (in millions)
| 6/30/15 | 12/31/14 | 9/30/14 | 6/30/14 | 3/31/14 | |
| Domestic | 42.3 | 39.1 | 37.2 | 36.2 | 35.6 |
| Internat’l | 23.3 | 18.2 | 15.8 | 13.8 | 12.7 |
| Total | 65.6 | 57.3 | 53 | 50 | 48.3 |
In 2016, Netflix is planning on spending $6B on content. At the same time, they’re expanding operations in LatAm, Europe and APAC. A big chunk of that $6B will go towards the development of new content. According to Forbes, several analyst are estimating Netflix subscriber base to increase to 100M by 2020. The big takeaway here; Netflix is going to disrupt the traditional “rights” business model, where media companies like Disney sell film rights to entities across the world (rights = regions, theater release, TV release, time of the day, etc). If Netflix develops its own content, like House of Cards, it can show content anywhere, anyplace, and anytime.
Comcast subscriber count is 22.375M video customers and 22.369M high speed Internet customers. In March 2015, Comcast generated $17.8B in revenue. Although quarterly revenue is massive, subscriber growth is very limited compared to Netflix. Netflix can go after the world, and Comcast must fight AT&T and other giants in the domestic market.
Now that we have a little more perspective, can Netflix surpass Comcast in market valuation in a few years? A big yes. The current global population is 7.3B, with BRIC nations representing 3B, Nigeria at 183M and Indonesia at 255M. Thus, as more of the population goes online, the upside potential in the international market is staggering. All Netflix has to do if figure out the formula for international growth.
With everything happening in business community, from the sharing economy, to how GAFAN is taking over the world, and all other disruptions is the market place, it would be foolish to put Netflix in a box, and expect them to grow at a certain clip, based on historical data. There is nothing holding back Netflix from adding 200M or 500M subscribers by 2020. Netflix is not a traditional company like Comcast or Disney, but are they are more of the same mold as WhatsApp, Uber, Airbnb, Google, Facebook and Amazon. Its not out of the realm of possibilities for Netflix to become the most dominant entertainment company the world has ever seen.
Disclosure: I’m not a Financial Analyst, and I’m not qualified to give investment advice on any stocks, or anything else.