Michael Kovac/Getty Netflix CEO Reed Hastings
Analysts at Morgan Stanley say that one demographic will be a key to Netflix's success in the US moving forward: older people, particularly those over 65.
And the analysts have a plan for how Netflix could snag older viewers.
After being the highest-performing stock on the S&P 500 in 2015, Netflix has had a rocky start to 2016, and is down around 12% year-to-date. Part of Wall Street's worry, besides doubts on international subscriber growth, is a fear that Netflix is reaching saturation in the US.
In other words, where are the new US Netflix subscribers going to come from?
Morgan Stanley says one answer is older Americans, particularly using integration with cable boxes as a way to lure them in.
"Based on our recent survey, US households that do not have Netflix skew older and are much less aware of Netflix programming," the analysts wrote in a note on Monday. Older people are simply less likely to be Netflix users. Here's a chart that shows it:
Morgan Stanley
But that doesn't mean they are less likely to pay for TV in general. In fact, they watch more TV and are more likely to pay for TV. Here is a chart demonstrating that:
Morgan Stanley
If older Americans are more likely to pay for TV, why are they less likely to subscribe to Netflix?
Morgan Stanley's thesis is that older people in the US don't inherently dislike Netflix content, but that some of them are simply unfamiliar with it because they are used to their normal methods of watching TV. They aren't looking to figure out how to sign up for Netflix and then get it to stream on their TV. An integration with a cable box could help that.
The analysts point to the UK as a place where this thesis has been borne out. "Survey data from the UK, where Netflix is more widely distributed on cable, is encouraging," they write. "Growth in reported Netflix usage on Virgin Media's TiVo platform and on TalkTalk (covered by Terence Tsui) following their respective set-top box integration deals highlights the benefits."
The deals
As to the negotiation process for getting Netflix in the boxes, the analysts think it's likely Netflix would be willing to sweeten the deal with cable companies by offering them favorable terms, like the ones they give Apple or TiVo. Then all Netflix needs is a partner on the other end that is not actively fighting such a deal.
"We think that both Charter and even Comcast (together now representing ~40mm video customers and ~47mm broadband customers) could be willing partners with Netflix in the near or medium term," the analysts write. "We note that Charter CEO Tom Rutledge has publicly stated that it is 'in our interest to support over-the-top .. .and we plan to integrate over-the-top television with traditional television.'"
And lest you still think that all age groups are already familiar with Netflix (even Americans that are over 65), consider the following chart. It shows that older Americans are much more unsure about which streaming or premium TV networks have the best content (including Netflix, Hulu, HBO, Showtime, and so on):
Morgan Stanley