There’s been a lot of negative discussion of Netflix recently – and while I think they have made mistakes, I’m bullish for the medium-term future. Essentially, Netflix lost 2% of their subscribers after a 60% price hike. Their overall revenue increased 4% from the second quarter, and 49% YOY. Granted, they expected more, but that big of a plummet?
The main argument I hear is that Amazon is going to compete with them. Amazon has had Instant Video (used to be called Unbox) for awhile, but now they are starting a subscription service, similar to Netflix. The content providers clearly want a second major player that they can play off Netflix from a negotiation stand point. But to assume they can be competitive with Netflix in the next year or two is misguided, in my opinion. Netflix has a huge user base of very loyal customers. More importantly, Netflix has significant distribution through set-top/DVR boxes, TV manufacturers, gaming consoles, Apple/Google TV, iPad, iPhone, Android, etc. Amazon has distribution on almost exclusively TV manufacturers and Google TV. Amazon has had time but is clearly not getting the same distribution – my hypothesis is that it’s because they are competing with some of the other channels with their Kindle Fire. And the assumption is that they’ll eventually get into the mobile phone space as well. So Microsoft, Google, and Apple aren’t going to push Amazon’s streaming service over their own, or Netflix (which has no single horse in the race). And distribution matters – I believe (albeit without proof) that people make buying decisions based on whether a device supports Netflix.
Content is still king, but as long as Netflix can continue to secure more content (which they can, utilizing their distribution/brand advantage), I would buy into their growth.