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Streaming Online Video Streaming Netflix (NASDAQ: NFLX) announced strong results for the third quarter last night, and the bullish speech was robust earnings from subscribers who exceeded all expectations. The company added nearly 7 million new subscribers worldwide during the quarter, crushing its own forecast of 5 million new members. Netflix is improving its forecasts, which should improve the accuracy of its outlook, said CEO Reed Hastings at the earnings call.
On top of that, Netflix now benefits from a somewhat old-fashioned distribution model: grouping.
Source of the image: Netflix.
An old fashioned way of distributing a modern service
Over the years, Netflix has had tremendous success with hardware integrations, ensuring that its service is ubiquitous and accessible from any device imaginable, from game consoles to decoders for streaming, including smart TVs. This has allowed it to expand its reach, but the company recently realized that it had the opportunity to partner with other service providers, even as Netflix was in fierce competition with linear TV and cable companies traditional.
For example, T Mobile started bundling Netflix for free last year for eligible T-Mobile One family plans. Earlier this year, Netflix announced partnerships with Telefonica in Spain and Latin America, in addition to KDDI in Japan. This last mobile plan in Japan was launched in the third quarter and Netflix said it was expanding its partnership with Verizon, in which the mobile application of Netflix is preinstalled on Android phones.
The clustering strategy has allowed Netflix to reach new demographic data, ones that may be slower to adopt new technologies. Here is Greg Peters, Product Manager, at last night's call:
This last round [of growth] we are currently seeing a consolidation, anywhere with an ISP, a mobile operator or a pay-TV operator. We can help people find Netflix even more easily and try the service. We see here that it allows us to access a subscriber base, a demographic of consumers who may be less of a technology fan than people who register directly with us. We are able to accelerate our growth in a new segment through these sales. So, we are learning more and more about it. We are trying to determine which markets they are working on and how to optimize this grouping strategy.
Impressively, this even includes the US market, where Netflix has remarkable brand strength. Despite the instant recognition of the brand, many consumers still do not make the effort to register directly, and the group removes some friction. Here's Peters again, answering the question of an analyst about the performance of the cluster at the national level compared to the international level:
I would say that even in the United States, where brand awareness is very high and the brand is well understood, there are still pockets of consumers who are more difficult to get the activation and l '39; energy needed to go directly to the website and register. But if we can actually set up a Netflix app, a call to action, maybe even bundle the subscription to the service as part of their pay-TV offer or mobile offer they can simply click on something and then go directly to the service. So, even for a place where we are well known, we facilitate or improve the registration of people. We are seeing a real acceleration of ads there.
The irony is that the rise of Netflix relies heavily on its direct and indirect distribution model, which bypasses traditional distribution channels such as cable companies, which have long been offering premium content channels. It turns out that the inherited distribution model still has value even for a disruptive company like Netflix.
Evan Niu, CFA holds shares in Netflix. The Motley Fool owns shares and recommends Netflix. The Motley Fool recommends TMUS and VZ. Motley Fool has a disclosure policy.
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