Why Netflix Needs Facebook
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Today I'd like to clue you in on a lesser known war Netflix (NASDAQ: NFLX) is fighting but one whose outcome carries great weight to their future.
Have you heard of FLIXPAC? It's Netflix's lobbying group on Capitol Hill set out to accomplish one goal: to change the Video Privacy Protection Act. The VPPA prohibits video rental stores from sharing customer's rental histories.
Netflix lacks a social element in its current model because of the VPPA. But movies and television are things we naturally connect to each other around, they're social common ground. Big disconnect? Yes. Netflix knows this and wants to let you share your entertainment opinions and viewing history with your Facebook (NASDAQ: FB) friends and fellow Netflix members around its content.
To underscore how important Netflix thinks this is, consider how instantly seeing your friends' movie ratings, favorites, queues, film reviews, and how their tastes match up with yours might enhance your experience and their business. They're betting you'd have lively conversations and tap titles in their vast library you otherwise wouldn't, increasing consumption and traffic. Seems right, but importantly their brand would be embedded into a movie's or television show's discourse by facilitating the exchange through Facebook. That sort of built-in marketing is powerful. Just maybe you'd become a new Netflix subscriber. Facebook's platform provides leverage to morph Netflix into a new animal.
Netflix isn't hampered by the VPPA internationally and those subscribers currently use a Facebook-Netflix App. In the U.S., music companies like Spotify have integrated with Facebook and have seen big subscriber growth. With Netflix's shares in sharp decline and competition on the rise, investors demand domestic growth. A VPPA amendment is key for Netflix in the American living-room war. When I'm not sure what streaming title to watch next...I'll just see what my friends are liking and my viewing experience becomes shared.
Netflix is uniquely situated to capitalize on a VPPA amendment where competition is less so. Currently they have the most robust content library and a flexible subscription model that warrants and rewards mass-subscriber discourse. At an all-you-can-eat buffet with millions of options, a pretty good way to decide what to eat is to see what your friends are eating, and what they think. You'll be tempted to try new things that in isolation weren't as appetizing. Right now we're dining at Netflix alone - but this can change quickly.
Can Facebook benefit from Netflix?...I hear they're looking for revenue streams. What are the possibilities?
If the amendment fails, Netflix's prospects get much bleaker. The House has passed it, and the Senate is expected to vote on it shortly. Stay tuned.
OceanJackson has a position in NFLX. The Motley Fool owns shares of Facebook and Netflix. Motley Fool newsletter services recommend Facebook and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.