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VERSUS
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Plans to
Become
How
“Our goal is to become HBO
faster than HBO can become us.”
-Netflix Chief Content Officer Ted Sarandos
2013
“The network that we think is
likely to be our biggest long-term
competitor-for-content is HBO”
-Netflix CEO Reed Hastings
2015
Why is Netflix so afraid of HBO?
Because HBO has three
things Netflix doesn’t
Massive scale
Massive scale
Massive profits
Massive scale
Massive profits
The best original content
But Netflix can get there
Both HBO and Netflix have
similar amounts of domestic
subscribers and revenue
Domestic Subscribers37.7 million
30 million
Domestic Revenue
$3.4 billion
$2.8 billion
But Netflix has a lot of
catching up to do on
international subscribers
International Subscribers
16.8 million
65 million
What it lacks in
subscribers, Netflix makes
up for in revenue
International Revenue
$1.3 billion
$600 million
HBO deploys a variety of
strategies internationally,
resulting in lower revenue
per subscriber1
1HBO’s primary strategy internationally is to license its brand and
content. The majority of HBO’s international subscribers are through
basic pay-TV subscriptions and some even receive HBO through over-
the-air broadcasts.
When it comes to profits,
however, HBO has Netflix beat
Total Profits
$260 million
$1.3 billion
Netflix’s profits are dragged
down by its international
expansion
U.S. vs Internationalprofit per subscriber per month
USA
International
$1.17
-$2.10
But even Netflix’s profits in
the mature U.S. market
don’t match HBO’s
Profit Per U.S. Subscriberper month
$1.17
$3.652
2Includes international licensing revenue as well as content licensing revenue
So what’s eating into all of
Netflix’s profits?
Disappearing Revenue
Revenue
$4.7 billion
Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$2.0 billion
Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$1.3 billion
Delivery, Distribution, Customer Service
$0.7 billion
Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$0.7 billion
Delivery, Distribution, Customer Service
$0.7 billion
Marketing
$0.6 billion
Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left $0.2 billion
Delivery, Distribution, Customer Service
$0.7 billion
Marketing
$0.6 billion
Tech & Development $0.5 billion
Compared to HBO,
Netflix spends way more on
content, distribution,
customer service,
marketing, and tech
HBO benefits from pay-TV
operators picking up its
distribution, customer service
and marketing expenses
And instead of providing
enough content to be
everything to everyone like
Netflix, HBO just has to fill
a TV schedule
As a result, HBO has a lot
fewer films than Netflix
Typical Number of Films Available on Demand
5,000
350
And HBO is able to spend
a lot more on its originals
Original Programming Budget
$300 million
$1 billion
HBO then sells its originals
via home video and
Amazon Prime Instant
Netflix only buys streaming
rights, which means it can’t
sell its originals on home
video
Last year, content sales
accounted for 17% of
HBO’s revenue
and that’s high-margin revenue
But Netflix uses its
originals to keep
subscribers watching
Netflix 2011
Time Spent Watchingminutes per subscriber per day
20.7 minutes
Netflix 2011
Time Spent Watchingminutes per subscriber per day
20.7 minutes
93.2 minutes
Netflix 2014
Netflix 2011
Time Spent Watchingminutes per subscriber per day
20.7 minutes
93.2 minutes
Netflix 2014 HBO 2014
49.2 minutes
The increase in average
time spent watching Netflix,
allowed the company to
increase its price last year
That’s a small step toward
becoming more like HBO
i.e. extremely profitable
Netflix will triple the amount
of original content it
produces in 2015
2014
Hours of New Original Content
105
320
2015
That’s another small step
toward becoming more like
HBO
Netflix’s plans to reach the
same scale as HBO are a
bit more involved than
HBO’s strategy
And a bit more expensive
see content costs
But Netflix plans to reach
200 countries by 2017
2015
Netflix Expansion
50
200
2017
The upcoming expansion
plans include Australia,
New Zealand, and Japan
Netflix Expansion
Netflix will have as many
total subscribers as HBO in
the near future
The question is …
The question is …
“How profitable will those
subscribers be?”
Netflix at 95 Million Subscribers3
Total Profit
$1.3 billion $1.3 billion
3Assumes all Netflix subscribers reach an average profitability of its U.S. subscribers in 2014
That’s how Netflix plans to
become HBO
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