Image source: Netflix.
At the Consumer Electronics Show in Las Vegas last week, Netflix (NFLX 1.43%) CEO Reed Hastings announced that subscribers streamed a total of 42.5 billion hours of video in 2015. The comment went largely unnoticed because he also happened to drop the bombshell that Netflix was expanding to 130 more countries immediately.
But a few analysts caught the announcement and went to work crunching numbers. Their conclusion is that the average subscriber streamed about 1.8 hours of Netflix per day in 2015. That's up roughly 13% -- or six hours per month -- from 2014.
Cord-cutting is driving growth
2015 was the year Americans started cutting the cord in earnest. Since the majority of Netflix's 69 million members reside in the United States, this had a tremendous impact on Netflix's global average watch time.
Last quarter, pay-TV operators lost over 500,000 subscribers year over year, according to Jan Dawson from JackDaw Research. What's more, Pay-TV operators are offering minimal video bundles including just a few channels and counting those as video subscribers. With households subscribed to fewer channels, that leaves more time to watch Netflix. After all, they have five hours of television time to fill.
There are more options than ever
2015 also saw growth in the number of options available for streaming video on demand. Amazon (AMZN +0.38%) and Hulu both improved the quality of their programming, with the former recently winning two Golden Globes for its comedy series Mozart in the Jungle. Netflix didn't win any awards, despite eight nominations.
Time Warner's (NYSE: TWX) HBO went over the top in 2015, quickly followed by Showtime. Meanwhile, Dish Network started streaming live TV, including sports, through Sling TV. Indeed, the options available to cord-cutters and cord-shavers have never been so plentiful.
The fact that Netflix continued to increase watch time despite a significant increase in competition speaks to the quality of its programming. Even though it didn't win any Golden Globes, Netflix has produced multiple critically acclaimed series. Moreover, the company is focused on curating only the best licensed content.
Next year, the company plans to roughly double the number of original series it produces to 31, and it's getting more involved with film production -- an area in which Amazon has also been investing heavily. Amazon CEO Jeff Bezos even went so far as to say he wants to win an Oscar. Netflix has a deal in place with Adam Sandler for four films, the first of which it says is its most-streamed feature film title to date.
What does this mean for investors?
The increase in average watch time per user is good news for Netflix investors. It's a pretty good indicator that it's providing a lot of value, which means Netflix will have an easier time raising prices. That's exactly what Netflix has been doing, with two price increases over the last two years. The standard 2-stream subscription now costs $9.99 per month.
Still, that's well off HBO's $14.99 per month for HBO Now. It's also short of Showtime's $10.99 price point. It's even less than Hulu's $11.99 commercial-free option -- although Hastings admitted that Hulu is even more of a cord-cutter's dream than Netflix in a recent interview. Only Amazon charges less per month with its $99 annual fee for Amazon Prime. Of course, it's relying on retail sales and cloud computing services to offset its content expenses for Instant Video.
It thus appears that there's still room for Netflix to increase prices.
What's more, if it's Netflix's original content driving view time, it bodes well for its global expansion. Netflix's content library is limited by regional licensing deals, but many of Netflix's new originals and third-party serial dramas are being licensed on a global basis. That means Netflix's driving factor will be present in every new market it just entered.
