These Companies Won't Take Down Netflix
Sep 27th 2011 7:42PM
Updated Sep 27th 2011 7:44PM
Taking shots at Netflix (NAS: NFLX) has almost gotten too easy. Thanks to the poorly handled price change and unfortunately named Qwikster, the company looks alarmingly vulnerable. However, a quick scan of the competition reveals that Netflix has a better position than you might think.
The hopeless and outdated
For those not interested in streaming, Coinstar's (NAS: CSTR) Redbox serves as a viable alternative. The kiosks' size limits the selection, but most users shouldn't have a problem finding a movie for the night. The service may pose a threat to Qwikster, but I wouldn't focus on the DVD side of business. We're moving toward streaming and on-demand entertainment. The battle is over who will dominate the digital video market.
DISH Network's (NAS: DISH) Blockbuster gambit also seems like a doomed venture. The company has chosen to limit its Movie Pass -- which includes in-store and by-mail DVD and game rentals as well as access to a small streaming library for $10 a month -- only to DISH subscribers for now.
DISH plans to open the service up to non-subscribers eventually, but I doubt that it will manage to keep the same low price. Liberty Starz backed out of negotiations because it wanted Netflix to charge more for Starz content. It's likely that the cable channel will place the same restrictions on any streaming service that isn't attached to a traditional subscription-TV provider. I also imagine that DISH won't want to price Blockbuster so low and pack it with so much premium content that it encourages cord-cutting.
Amazon.com (NAS: AMZN) could pose a potential threat. It just signed a deal with News Corp.'s (NAS: NWS) Twentieth Century Fox to make thousands of movies and TV shows available to Prime members. The deal brings Amazon's instant video options up to a respectable 11,000. Throw in free two-day shipping on Amazon purchases along with the low annual fee of $79, and you have a bona fide Netflix killer, right?
Well no, not really. To see why, take a look at the top four devices people use to watch Netflix.
Percentage of Netflix Traffic
|Sony PlayStation 3||30.57%|
|Microsoft Xbox 360||24.94%|
Video-game consoles account for roughly 60% of Netflix's total traffic. At the moment, gamers wanting to switch to Prime would have to buy another device if they want to watch Amazon's content on their television. That may be just enough to keep current subscribers from wandering over to Prime.
The only contender
About the only service poised to compete with Netflix is Hulu Plus. It streams to both the Xbox 360 and the PlayStation 3, so switching is a matter of canceling one and registering for the other. It also has a selection of newer episodes and more than 40 million free users just waiting to be converted to paying subscribers.
Yet I don't think Hulu is the Netflix killer, either. First, Hulu's owners -- News Corp., Disney (NYS: DIS) , and NBCUniversal -- can't agree on whether they should sell it. If they do decide to sell, it's unclear who would buy it or what they would do with the service.
You also have to take into account the influence of subscription-television providers. Because Hulu carries episodes from the current season, it's the best option for potential cord-cutting TV junkies. Subscription-TV providers will probably step in to ruin the service by insisting on higher prices -- and we all know how well that goes over -- requiring Hulu Plus subscribers to also have TV subscriptions to access premium content, or holding new episodes for a week.
The past few months have shown us that Netflix is far from invincible, but I think many investors declared the company doomed prematurely. Not one of its competitors is in a position to capitalize on the company's recent PR gaffes. By the time these companies have gotten their acts together, consumers will probably have calmed down and the opportunity to overtake Netflix will have passed.
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At the time this article was published Fool contributor Patrick Martin owns shares of Netflix but of no other company mentioned in this article. You can follow him on Twitter, where he goes by @TMFpcmart03. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, Microsoft, Nintendo, and Walt Disney, creating a bull call spread position in Microsoft, and creating a bear put spread position in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.
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