Is this the End for Netflix?
Comcast is offering its streaming service for $4.99 a month or free for customers who have a higher priced cable package. This compares with Netflix offering its service at $7.99 a month. I think there might be a significant hit to the corporate earnings of Netflix if many of its clients decide that a bundled cable package of current TV and an online database of streaming movies that’s either free or only $4.99 might entice many customers.
But Comcast is not the only one Netflix has to fight for its corporate earnings. Amazon is continuing to sign deals with Hollywood companies for its streaming service, offering movies and TV shows as well. Amazon is a giant that relies on slim corporate earnings, which can only hurt the future earnings outlook for Netflix.
Fighting this battle for corporate earnings amongst huge corporations won’t be easy for Netflix. Netflix faces lower market prices, greater accessibility for consumers to more competition, and higher costs, as Netflix has signed deals for content already and can’t increase prices to the end consumer. This is a bad business model and it’s tough to see how the company’s corporate earnings are going to expand.
One key indicator that might help Netflix is that it is attempting to produce and sign content exclusively for its own network. At this point, it is difficult to calculate an earnings outlook based on something that’s theoretical. I would need to see how much interest these new initiatives can garner and if this can stop the outflow of customers leaving for their competitors.
Management needs to differentiate Netflix from the crowd, or try to sell the firm to a larger company like Apple Inc. (AAPL) or Google Inc. (GOOG). While Netflix still has a fighting chance to survive, it will be a very tough road over the next several years, as the earnings outlook remains very murky. Corporate earnings will most likely be hurt by lower-priced competitors enticing customers to switch away from Netflix.