IndustryGamers - Informing the Games Industry

Game Consoles to Add 2 Million New Subscribers for Netflix This Year, says Pachter

Posted April 9, 2010 by James Brightman

Netflix has been a pretty big hit on Xbox Live, but now the adoption rate seems to be slowing, Wedbush Morgan analyst Michael Pachter said. Since the movies streaming service is newer to PS3 and Wii, however, those two platforms should still give Netflix a sizable boost. All told, Pachter expects the three consoles to provide Netflix with an additional 2 million subscribers in 2010. That would represent almost half of all new subscriptions Netflix expects this year, showing just how important the connected consoles have been to their business.

"The company remains confident about its growth prospects, expecting net subscriber additions in 2010 of 3.2 – 4 million. We think that this growth, while likely to continue for two to three years, is unsustainable. We believe that 800,000 of the subscribers added in 2009 were from the addition of Netflix to Microsoft’s Xbox 360 dashboard, and think that this figure will subside to around 300,000 – 400,000 per year in 2010 and beyond," Pachter stated. "In our view, the rapid growth of new subscriber additions from the Xbox Live installed base will ultimately slow, as the installed base becomes saturated. We think that future subscriber gains from Xbox Live will be limited to a small percentage of new Xbox 360 owners, and we estimate that at a 5 – 10% conversion rate of new owners, this will translate to 300,000 – 400,000 annual new subscribers. The addition of the PS3 as an Internet-ready Netflix device likely will drive numbers similar to what were generated by the Xbox 360 installed base. While the PS3 base is smaller, Netflix is available on all PS3s as opposed to being available only on those Xbox 360s that are signed up for the Xbox Live Gold service. The entire PS3 installed base is similar in size to the Xbox Live Gold audience, suggesting that the PS3 will generate approximately 800,000 new subscribers for Netflix in 2010. In 2011 and beyond, we think that the PS3 installed base will also become saturated, and that future subscriber gains from PS3 will come only from new purchasers of the console, at a rate similar to our projection from the Xbox 360."

He continued, "The Wii installed base is expected to shortly become a new source of Netflix customers, and we think that this installed base is also likely to generate similar numbers to what was generated from the Xbox 360 and what we expect to be generated from the PS3, or around 800,000 new subscribers in 2010 and around 300,000 per year thereafter. We are less confident about the potential for subscriber growth on the Wii, as we believe that only a small portion of the Wii installed base is connected to the Internet (we estimate fewer than 35%), so although the overall Wii installed base is much larger than the installed base of the PS3 or the Xbox 360, we believe that its potential to drive Netflix subscriber growth may be somewhat lower. Simple addition will reveal that we expect around 2 million net new subscribers from the three home video game consoles in 2010, and around 900,000 – 1.2 million annually thereafter."

James Brightman has been covering the games industry since 2003 and has been an avid gamer ever since the days of Atari and Intellivision. He was previously the EIC of GameDaily Biz.