Netflix results show power of its model

Netflix has managed to pull off the double axle of retail. The $145bn (€125.67bn) streaming-video company has both the scale of shopping giant Walmart and the pricing power of luxury-jewellery outfit Tiffany. Chief executive Reed Hastings’ next trick is to work out how to maintain both labels.

Netflix added just over one million new US subscribers last quarter, compared with an estimated 674,000, according to data from Refinitiv.

Its worldwide tally is 130 million members. Such success comes despite occasionally hiking the price of its monthly streaming service – most recently a year ago. It’s also a sign Netflix is turning out a desirable collection of its own movies and TV series. And the increase is reassuring after Netflix missed its target in the second quarter, which sent its stock plummeting.

There are lingering concerns, though. Netflix is spending billions of dollars on content that appeals to its subscribers. The firm signalled it will burn around $3bn in cash this year and last week bought a production studio in New Mexico to ramp up its own series like critically acclaimed ‘Stranger Things’.

The competition continues to intensify, too. Rival media firms like Walt Disney have recognised the competitive threat and have pulled fare like the ‘Star Wars’ franchise from Netflix as it readies its own direct-to-consumer products.

Even US supermarket giant Walmart is looking to capitalize on the on-demand video service that it acquired in 2010, recently striking a partnership with MGM. CEO Doug McMillon told Walmart investors on Tuesday that it was an opportunity to improve customer offerings without forking over a ton of money.

Keeping a tight hold on the purse strings will be tough in the current media environment. Disney is spending a whopping $71bn for Twenty-First Century Fox’s entertainment and international assets after Rupert Murdoch realized it was better to sell than to try to compete against Netflix. AT&T is another case study, having spent $85bn for Time Warner.

In fact it was the telecom firm’s chief executive, Randall Stephenson, who at a different investor conference last month first drew the comparison between jewellers, mega-stores and entertainment. He called AT&T’s newly acquired HBO the Tiffany of streaming video due to quality shows like ‘Game of Thrones’, while describing Netflix as Walmart. He’s half right.