The relatively free competition ride Netflix (NASDAQ:NFLX) has been enjoying is almost over, as Amazon.com (NASDAQ:AMZN) gets ready to enter the streaming video market with about 5,000 TV shows and movies.
What's important to note is the original model that gave Netflix the edge - sending discs in the mail - is starting to erode. Now that it's all going digital again, the competition will heat up in a totally different market environment which will challenge Netflix like they've never been before.
A recent advertisement found on the Web revealed an Amazon streaming service being offered free to their Prime customers, which is definitely a game changer for Netflix.
Even with their wild ride, Netflix could easily become the next Blockbuster if they aren't able to respond to the online behemoth.
There will be some time because of the gradual migration to streaming services. And Netflix will probably keep a portion of customers who like to use a physical DVD for their media.
But even with the obvious price savings, Netflix appears to be headed to for a clash with titans. This doesn't include whatever Apple (NASDAQ:AAPL) may have up their sleeve, as it's too lucrative of a market to just bypass.
The point isn't the competition and how big they are, the point is what will Netflix have that differentiates them from the giant competitors. That's what's important, and people aren't going to care who they stream video from, as streaming will quickly become a easily duplicatable commodity, which will compete solely on price.
In that regard, Netflix doesn't have the ammo to take on the giants.
This is why they're pushing so hard to grow and expand internationally, in hopes of generating the revenue and earnings to compete at the level they're going to be forced to very soon.
It'll take a little time, but the handwriting is definitely on the wall for Netflix, and they're going to have to differentiate is some meaningful manner if they don't want their market share to incrementally shrink over the next couple of years, where they become a shell of their former selves.
This was Bewkes' point, which I'm surprised didn't adversely affect NFLX. Netflix does not have a unique way to differentiate itself and keep competitors out of its market. Because of this, Netflix has no leverage to cannibalize profit from the content-creators. Combine that fact with the fact they currently only provide content with the cheapest cost by streaming, and you have a recipe for increasing prices and decreasing profit margins. The writing is on the wall (with a CEO unwilling to take questions or give guidance on any of these negatives), yet somehow there are enough suckers out there who will continue to bid up this stock to heights only supported by years of outrageous growth. I guess some are just playing the usual game of hot potato, where they just hope they get out right before it crashes. Amazon (On Demand) and/or Apple (iTunes) already have half the work done to enter Netflix's market, so the party may be ending sooner than everyone thinks.
ReplyDelete