Netflix (NFLX) Hammered on Facebook Competition

It appears many Netflix (NASDAQ:NFLX) supporters are officially in denial, as the latest entry into the streaming video fray is none other than social-networking behemoth Facebook, which inked a deal with Warner Bros. to offer for movie rentals or purchases.

While in the short term this may not be a big deal, as far as impact on Netflix goes, but it shows the tremendous vulnerability they have to companies with huge pockets which can incrementally eat away at their market share.

Facebook will assuredly sign up more companies for video streaming, and that will eat away even more at the market share of Netflix.

Interestingly, Goldman Sachs (NYSE:GS), which reported on the deal between Facebook and Warner Bros. said, "Facebook’s foray into pay-per-view does not impact our Netflix estimates."

Again, that's probably true, but the important story is what is the future of Netflix when a large number of these types of deals are expanded at Facebook and another streaming video competitor: Amazon.com (NASDAQ:AMZN).

Goldman analyst Ingrid Chung did note this though, "Facebook represents a new potential entrant that few in the investment community were concerned with prior to this announcement, so we believe it does indeed represent an incremental negative for Netflix shares."

In an environment where streaming video is becoming a commodity which will be based on price, it's hard to see how Netflix will defend themselves over the long term.

Shareholders and investors were evidently thinking the same thing, as the company closed at $195.45, plunging $11.95, or 5.76 percent.