Washington - After a hacker group leaked new episodes of
"Orange Is the New Black" last Saturday, you may have expected
investors to flee the company's stock.
But analysts say Netflix will weather this storm rather
easily. In fact, the company's stock price rose more than 2 percent Monday
despite the hack. Here's why investors may be sunny on Netflix in light of the
incident.
For one thing, it isn't as though viewers of "Orange
Is the New Black" are about to cancel their subscriptions just because they
can get for free what they were paying for. Netflix is likely to keep getting
subscribers' money, said Laura Martin, an analyst at the asset management firm
Needham & Company.
And while Netflix might be concerned about potential
customers seeking out free, pirated content rather than paying for it, she
added, most Americans - roughly 54 percent, according to Leichtman Research -
already have Netflix.
"[The leak] slows subscriber growth and lowers
investment on return for that series because that series is now available off
the Netflix platform for free," Martin said. "But owing to the high
penetration of Netflix already in America specifically, I don't think it'll
have a negative impact on current subscriber [numbers]."
Read also: Netflix falls short on users
What's more, it wasn't Netflix itself that was hacked,
but Larson Studios, a postproduction company that has performed work for
Netflix, Fox and ABC, among others. That helps distance Netflix from the
fallout.
So if the hack won't affect Netflix much in the United
States, how about internationally, where much of its growth is taking place?
Popular show
It's certainly the case that "Orange Is the New
Black" is one of Netflix's most popular shows. But Netflix is already
designing original shows that target specific international markets such as
Spain, Japan and India. Netflix CE Reed Hastings has said the company is
exploring genres such as anime and Bollywood. So even if the recent hacking
hurts Netflix's performance overseas by encouraging people to pirate
"Orange Is the New Black" rather than pay for it - which isn't clear,
and may not be until the company's next earnings report - it is still
cultivating a diverse portfolio of content aimed at attracting a massive
international customer base, analysts say.
What's more, Netflix has always taken a somewhat
unconventional view of piracy - acknowledging that the practice can and will
happen, and essentially doing as much as possible to undermine it through a
kind of asymmetric warfare. For example, Netflix famously analysed the
most-pirated shows in the Netherlands to determine what customers there wanted
to watch. Then Netflix went and bought the rights to those shows, in an attempt
to convince illegal streamers to switch to what it argued was a better TV
service.
"We think the best way to eliminate piracy is to
make content available to people simply, cost-effectively and in a way that
they can understand, that works across devices," said a Netflix spokesman,
speaking on the condition of anonymity to discuss the hack.
Netflix has pointed to declines in peer-to-peer
file-sharing traffic over the Internet as evidence that its strategy of
co-opting pirates is working.
And then there's Netflix's own army of fans, who are
urging other viewers not to pirate the leaked episodes of "Orange."