Friday, April 8, 2011

Google (GOOG) Killing Netflix (NFLX)?

With Google (NASDAQ:GOOG) making major changes to it YouTube video service, in a move that will directly compete with NetFlix (NASDAQ:NFLX), the question is if Netflix will be able to compete at that level as it is built out.

Netflix's problem and challenge is simple. They have to differentiate because of content delivery going digital. What that means is the business from that point of view is moving toward a commodity, where the price leader will win. Netflix can't compete with Google in that regard.

While Netflix is making the right moves in acquiring unique content, that content is so expensive that it's prohibitive for them over the long haul.

Google gets free content which they are surrounding with ads, which, along with other revenue streams, builds out its revenue to make other deals.

As far as movie and TV content from studios, again, that's all the same, and unless there are exclusive deals, it does little to help a company when price is the determining factor when offering the same content as another company.

There will be other competitors emerging as well, and while there will always be a physical DVD core base to work from for Netflix, that base will shrink to a much smaller portion of revenue and earnings, and won't be able to fund major content deals.

For now Netflix is relatively safe, as it'll take a little time for companies to secure content deals and roll out their platforms. But once that's in place, it's hard to see how Netflix will have much of a future.

More than likely the company will eventually become a takeover target be a larger rival, which isn't necessarily a bad thing for shareholders. That is probably the real long-term play for Netflix, not its ability to compete in streaming video.

Netflix was trading at $237.86, gaining $3.90, or 1.67 percent, as of 12:57 PM EDT. Google was trading at $581.82, up $1.82, or 0.31 percent.

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