Peter Kafka

Recent Posts by Peter Kafka

Who, Us? Netflix Says Its Customers Aren't Cord Cutters

Here is the standard cord-cutting formula: Tell your cable company to pound sand and replace it with an antenna, an Internet connection and a Netflix subscription.

Except, says Netflix CEO Reed Hastings, that’s not what his 19.6 million customers are doing.

Responding to a question during yesterday’s earnings call, Hastings told analysts he doesn’t see any evidence that his customers are choosing Netflix instead of cable. They’re using it to augment their cable subscription, he said: “We still see no evidence that our subscribers cut cords at a greater rate than the population.”

That contradicts both popular wisdom, as well as at least one recent survey, which found Netflix subscribers using the service as a cable substitute. Then again, a competing study from BTIG’s Rich Greenfield (registration required) found that hypothetical cord cutters are only slightly more likely–by a margin of 51 percent to 49 percent–to have Netflix.

And the existence of cable-cutting itself is still very much up for debate in the TV business. Cable companies like Comcast insist that they don’t see evidence of it. But Ivan Seidenberg, who runs cable competitor Verizon, says it’s inevitable.

Netflix, meanwhile, has been consistent in arguing that it’s not helping anyone do any snipping. Here’s Hastings answering a similar question during an earnings call three months ago (PDF):

Q: Do you see any evidence that Netflix subscribers are inclined to either cancel multi-channel video subscriptions, or to pare back use of premium services such as Starz, Encore, HBO?

A: No, we haven’t seen any evidence of that and there’s no evidence in the total numbers of those firms in last quarter’s financials and total subscribers, so total multi-channel video subscribers is continuing to grow in the US. Premium subscribers is not showing any decline, so I don’t think there’s any material cord cutting. I think what’s happening is the multi-channel video, such a broad package with an incredible array of products, that we’re a tiny little fraction of that, and our subscribers view us as a supplemental service, and because it’s a modest cost at $9 a month, it works for them and their budget.

The numbers bear Hastings out: In the past year, his service has added 5.8 million subscribers. If, say, 20 percent of those new customers were cord cutters, you would have seen cable rolls drop by more than one million people. But so far we’ve only seen a 200,000-person drop, in the second quarter of 2010. And some analysts think that number will turn positive for the rest of the year.

But that doesn’t mean Hastings doesn’t plan to cut directly into the cable business in the future, when Netflix has a truly comprehensive streaming video catalog. Which means it’s worth asking Hastings about cord-cutting every quarter.

One of these days you might get a different answer.


Latest Video

View all videos »

Search »

There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google