Richard’s Corner

Michael Pachter:

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.

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