Netflix's Peers Tap Into Streaming Media
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Online media streaming of movies and television programs is here to stay. But the question now becomes who will lead the charge? For a long time, that position belonged to Netflix (NASDAQ: NFLX), but with ever increasing competition and unpopular changes to its pricing structure, the company may eventually lose its prized position for second or third place if some changes are not made. For a successful, profitable business, coming in second or third is not that big a deal – unless that business is the one that changed the way people view movies and television programs the way Netflix did.
Even though the company still maintains the largest online movie and television database, companies like Amazon (NASDAQ: AMZN) continue to close the gap by making deals with various studios and production companies to stream new content.
Netflix Numbers Briefing
Netflix recently released its Q2 financial reports. The news wasn't as bad as some analysts thought as the company remains profitable with reports stating Netflix earned 11 a share. But, the stock price has steadily fallen over the past year. This fall in stock price coincided with the company's decision to start charging fees for both online streaming and DVD-by mail services. And instead of expanding the company by offering music or other types of media, Netflix has decided to focus on expanding current services to other countries, including Canada and the UK.
In addition to showing a profit, the company also reported adding 530,000 new customers during the quarter. This is an impressive number, but falls short considering the company's overall goal for the year is to add 7 million new customers. It's my guess that by expanding into new viewing markets, Netflix hopes to reach its goal. That being said, I think the company needs to start developing new product and service ideas soon. Netflix doesn't have to launch any new services this year, but the company should have something new to offer customers by next year to remain profitable and relevant in the online streaming media marketplace.
Currently, the company's stock price is $57 per share. To put this in perspective, just five months ago, Netflix stock traded around $130 per share. This is a huge drop and one that some analysts don't believe will end anytime soon.
The Positives
Even though the Q2 financial reports paint a less-than-happy picture of Netflix right now, the company has a few positive qualities that could help lessen investor anxiety (at least, for now). First, the company boasted that members streamed 1 billion hours of content during the month of June – this is the company's largest streaming amount to date. Second, the company continues to generate new business by increasing its customer base. Third, Netflix continues to add new content on a regular basis to keep current customers happy and to attract new ones. Lastly, streaming media continues to grow in popularity and if membership prices remain reasonable, people may subscribe to more than one service, which will reduce the competition.
Netflix has built a successful, recognizable brand in a very short time. Even though other well-known companies like Amazon and Apple (NASDAQ: AAPL) have expanded into streaming media territory, it is unlikely, at least for now, that either of these companies will take the market over completely. Apple's products heavily used for streaming media, and just recently, Apple offered a $7.99 per month Hulu Plus service option to its Apple TV. Netflix has also proven itself as a worthy competitor by beating out smaller distributors like Blockbuster, owned by Dish Network (DISH).
The next logical step in building the Netflix brand is to expand into original programming. Recently, the company announced it would produce an original series for viewing on the service. This is promising as this shows that management has put some thought into future programming.
Trouble Ahead?
But even with all these positive qualities, Netflix may be in a world of trouble if it doesn't start planning ahead. In February, Redbox and Verizon (NYSE: VZ) announced a partnership to start a streaming service similar to Netflix at some point this year. Amazon now controls two online streaming services. Other companies will soon follow, especially with the growing popularity of portable devices which provide consumers with even more access to online media content.
Lesser known competitors are cable companies that provide streaming movies with monthly subscriptions. Most cable companies including Comcast (NASDAQ: CMCSA) and Verizon provide free and pay-per-view titles for customers. Comcast has been manuevering to become a content based company, especially since acquiring a 51% stake in NBCUniversal last year. With so many options when it comes to downloading online content, Netflix needs to make sure it doesn't become complacent just because it is an established brand. Yes, the company saw up to 1 billion hours of online stream for June, but it doesn't mean this trend will continue indefinitely.
The main issue I have with Netflix right now is the company's unwillingness to budge from its current expansion strategy. While I think it's important to move into new viewing markets, it's also important to consider the future and the competition. Since online technology moves so fast, companies need to remain innovative and competitive in order to remain in business. Consumers have not changed – they will always flock to what's convenient and entertaining. But if Netflix expects to compete with other companies, it needs to start planning now, not a year from now or even six months from now.
Investing in Netflix
That being said, I still think investors should carefully consider their options before taking their investment and moving to another company. Netflix remains very popular with consumers. Investors should monitor how well received the service is in other countries. This will provide a clear indication of the success of the company's current strategy. Investors should also take note of how management responds to the success or failure of current expansion. If management chooses to do nothing in the wake of a less-than-stellar embrace of Netflix by new viewers, then investors should move on.
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