NetflixGoogle's (GOOG) video-sharing site, YouTube, is giving Netflix (NFLX) investors a scare with its recent announcement that it has doubled the number of movie titles in its rental library to 6,000, on top of an already large number of free and paid titles. This raises the question: Will its strategy be successful enough that it can directly compete with Netflix?

Netflix is already attempting to fend off competitive threats from Apple's (AAPL) iTunes, Hulu and video-on-demand services from pay-TV providers like Comcast (CMCSA) and Time Warner Cable (TWC).

YouTube Has a Wider Reach

Compared to Netflix's approximate 23.6 million subscribers, YouTube's user count of close to 500 million points to a vast market opportunity. With its global reach, YouTube has an already established user base to which it can market its offerings.


... But Netflix's Business Model and Content Are Better

Netflix's content offerings trump YouTube currently: It entered the market earlier and offers both a higher quantity of offerings and a wider mix of titles. This is a key competitive advantage for now. In addition to streaming movies, the company offers streaming TV shows, and its allows its subscribers to rent DVDs for new movie titles. Netflix's video quality is also better than YouTube's.

We also believe that Netflix's fee-based model is better than the rent-per-use approach that YouTube is promoting. The pay-per-use system is similar to Apple's iTunes business, and we have seen Netflix's business grow at a much faster rate using its fee-based model. This seems to be a more attractive value proposition for users who plan to view multiple movies a month.

As such, we believe that YouTube's move adds greater pressure on Netflix for sure but is unlikely to impact Netflix's subscriber growth meaningfully in the near term. While we like Netflix's business model, we feel that from a valuation perspective its stock price is a little heady, and we maintain a $153 price estimate for Netflix, which is around 35% below the market price.

See our full analysis for Netflix's stock here.

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cassiehemingway

I happen to like netflix, i wouold never go to youtube as I think the price is right with netflix and the video quality is fantastic.
I have been completely satisfied with netflix and hope they keep the great service they provide

cassandra

May 22 2011 at 9:41 PM Report abuse rate up rate down Reply
VICT

yes i like netflix but they need to impruve on thear oudio selection

May 22 2011 at 8:15 PM Report abuse rate up rate down Reply
CONNIE

why doesn't Netflix buy another copy of Secretariat? I have waited 3 months for that movie (It's been #1 on my queue for 3 months) I have about given up getting it on Netflix and will get it on ON DEMAND" for $4.99.

May 22 2011 at 8:03 PM Report abuse rate up rate down Reply
The Hammer

I still love Netflix!

May 22 2011 at 7:42 PM Report abuse rate up rate down Reply
1 reply to The Hammer's comment
charlesllc

eliotcholse
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May 22 2011 at 9:37 PM Report abuse rate up rate down Reply
Denis

I wouldn't rent anything from Netflix because they tick me off with those supid pop-up ads that jump in on top of what I am trying to read. That alone turns me off. I hope they go BK.

May 22 2011 at 7:39 PM Report abuse rate up rate down Reply
Steven Johnson

Hi!

May 22 2011 at 7:37 PM Report abuse +1 rate up rate down Reply
tracyap73

I personally like the old school method of buying the movie or album. For movies, I like the idea of having my own copy of movies and not having to rent it or try to hunt down a copy that is out of print. As for music, downloads take away the personal extras that the artists add to the booklets. Also, paying the artists for their product, so that they can make a living on their hard work and provide us with more of their work in the future. Plus, with downloads, people only download one or two songs and don't experience the artists full body of work. One thing I can't stand is, someone who claims an artist or group of artists are great or terrible and they've only heard one or two songs. If it doesn't make it on the radio, or some critic doesn't approve of it, people don't want to listen to it or don't like it.

May 22 2011 at 7:03 PM Report abuse +1 rate up rate down Reply
aeph1026

I don't really use either one. However, I despise Netflix popup advertising. I have popup controls, and it still coes through on AOL.

May 22 2011 at 7:02 PM Report abuse +2 rate up rate down Reply
Teresa

Net Flix you have my vote. I can't afford you, But i love you. Me from Idaho

May 22 2011 at 6:39 PM Report abuse +1 rate up rate down Reply
Mike

Up until now, since I hadn't heard ads on TV, newspaer, or internet for such a long time after they started first pushing their company, I almost thought Netflix was a scam! They were all over the "airwaves" for a while, then just all of the sudden disappeared.

Nevertheless, I think there is no point to having ANOTHER PLACE to get your television shows. So if other people want to spend their money on this service, I'm not going to stop them.

May 22 2011 at 6:24 PM Report abuse +1 rate up rate down Reply