1. Text
1
VERSUS

2. Text
2
Plans to
Become
How

3. “Our goal is to become HBO
faster than HBO can become us.”
-Netflix Chief Content Officer Ted Sarandos
2013

4. “The network that we think is
likely to be our biggest long-term
competitor-for-content is HBO”
-Netflix CEO Reed Hastings
2015

5. Why is Netflix so afraid of HBO?

6. Because HBO has three
things Netflix doesn’t

7. Massive scale

8. Massive scale
Massive profits

9. Massive scale
Massive profits
The best original content

10. But Netflix can get there

11. Both HBO and Netflix have
similar amounts of domestic
subscribers and revenue

12. Domestic Subscribers
37.7 million
30 million

13. Domestic Revenue
$3.4 billion
$2.8 billion

14. But Netflix has a lot of
catching up to do on
international subscribers

15. International Subscribers
16.8 million
65 million

16. What it lacks in
subscribers, Netflix makes
up for in revenue

17. International Revenue
$1.3 billion
$600 million

18. 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.

19. When it comes to profits,
however, HBO has Netflix beat

20. Total Profits
$260 million
$1.3 billion

21. Netflix’s profits are dragged
down by its international
expansion

22. U.S. vs International
profit per subscriber per month
USA
International
$1.17
-$2.10

23. But even Netflix’s profits in
the mature U.S. market
don’t match HBO’s

24. Profit Per U.S. Subscriber
per month
$1.17
$3.652
2Includes international licensing revenue as well as content licensing revenue

25. So what’s eating into all of
Netflix’s profits?

26. Disappearing Revenue
Revenue
$4.7 billion

27. Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$2.0 billion

28. Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$1.3 billion
Delivery, Distribution, Customer Service
$0.7 billion

29. Disappearing Revenue
Content Costs
$2.7 billion
Revenue Left
$0.7 billion
Delivery, Distribution, Customer Service
$0.7 billion
Marketing
$0.6 billion

30. 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

31. Compared to HBO,
Netflix spends way more on
content, distribution,
customer service,
marketing, and tech

32. HBO benefits from pay-TV
operators picking up its
distribution, customer service
and marketing expenses

33. And instead of providing
enough content to be
everything to everyone like
Netflix, HBO just has to fill
a TV schedule

34. As a result, HBO has a lot
fewer films than Netflix

35. Typical Number of Films Available on Demand
5,000
350

36. And HBO is able to spend
a lot more on its originals

37. Original Programming Budget
$300 million
$1 billion

38. HBO then sells its originals
via home video and
Amazon Prime Instant

39. Netflix only buys streaming
rights, which means it can’t
sell its originals on home
video

40. Last year, content sales
accounted for 17% of
HBO’s revenue
and that’s high-margin revenue

41. But Netflix uses its
originals to keep
subscribers watching

42. Netflix 2011
Time Spent Watching
minutes per subscriber per day
20.7 minutes

43. Netflix 2011
Time Spent Watching
minutes per subscriber per day
20.7 minutes
93.2 minutes
Netflix 2014

44. Netflix 2011
Time Spent Watching
minutes per subscriber per day
20.7 minutes
93.2 minutes
Netflix 2014 HBO 2014
49.2 minutes

45. The increase in average
time spent watching Netflix,
allowed the company to
increase its price last year

46. That’s a small step toward
becoming more like HBO
i.e. extremely profitable

47. Netflix will triple the amount
of original content it
produces in 2015

48. 2014
Hours of New Original Content
105
320
2015

49. That’s another small step
toward becoming more like
HBO

50. Netflix’s plans to reach the
same scale as HBO are a
bit more involved than
HBO’s strategy

51. And a bit more expensive
see content costs

52. But Netflix plans to reach
200 countries by 2017

53. 2015
Netflix Expansion
50
200
2017

54. The upcoming expansion
plans include Australia,
New Zealand, and Japan

55. Netflix Expansion

56. Netflix will have as many
total subscribers as HBO in
the near future

57. The question is …

58. The question is …
“How profitable will those
subscribers be?”

59. 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

60. That’s how Netflix plans to
become HBO

61. 61
SFR
CLICK HERE TO READ NOW